RETAILERS SHARE CYBER SECRETS EGG SHORTAGE LOOMS FOOD RETAILERS CAN SAVE THE PLANET! WHAT’S NEXT FOR LIDL
Hardest Job in Retail Shell EVP István Kapitány’s bold plan to transform a global network of 43,000 locations.
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A COMMON ENEMY. The battle against climate change is providing retailers with a competitive advantage.
GOING GLOBAL AND LOCAL. Multiculturalism has changed the American palate and created growth potential for retailers.
22 SPECIAL REPORT
LIDL GETS PHYSICAL. The German chain is looking to disrupt retail with a brick-and-mortar approach.
26 COVER STORY
THE HARDESTJOB IN RETAIL. Shell EVP István Kapitány’s bold plan to transform a global network of 43,000 locations.
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8 SOCIAL RESPONSIBILITY
FRESH GROWTH. Fresh Thyme Farmers Market has the backing of Meijer and new capacity in place to drive growth.
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ADVERTISING SALES & BUSINESS
WINNING WITH STRUCTURE. As autumn arrives, the season of change is at hand for the retail industry.
12 GROWTH AND BUSINESS DEVELOPMENT
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34 TECHNOLOGY AND INNOVATION
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THE AUTONOMOUS ASSOCIATE. A robot revolution is coming to retail.
CYBER SECRET WEAPON. Retailers are better equipped than ever to defend themselves against digital bad actors.
38 SUPPLY CHAIN
CARGO IS KING. Retail supply chains in the central U.S. will be reshaped by a new intermodal facility in Louisiana.
50 WHAT’S NEXT
CAGE-FREE CONUNDRUM. Retailers’ commitments represent the ultimate chicken or egg scenario.
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letter from the
Winning With Structure The air is cooler and the leaves are turning, which means the season of change is at hand for the retail industry. Fall can be a wonderful time of year, with its crisp air and colorful foliage, but it also brings plenty of angst for struggling retailers and senior executives at those companies. For them, delightful fall weather is a reminder of impending changes likely to result from deteriorating results. The typical response to poor performance involves new leaders with fresh ideas and new thinking about how to execute strategic initiatives to grow sales and profits. At large public companies it is common to have a big reveal about a transformation effort to restore growth and create shareholder value, qualified by a multi-year implementation plan. The other sort of change that begins to happen in the fall and extends through the holidays involves companies that are enjoying varying degrees of success. These companies are proactive and tend to announce senior leadership changes and new strategic initiatives because they want to avoid falling into the camp that stuck with what worked for too long and was forced to make more sweeping changes. Change is hard and success is known to breed complacency, but how could any retailer be complacent today? In fact, name a retailer today that is knocking the cover off the ball. It’s a very short list with one name at the top that has everyone freaking out. The point being that every retailer needs to be changing all the time because the industry is changing all the time. This change is happening faster than ever and the majority of it relates to finding the balance between digital disruption, e-commerce and the integration with physical operations. This is a thorny challenge but it is one that doesn’t require new senior leadership or bold pronouncements about strategic initiatives. Actually, the opposite is true and the reality is the solution is pretty boring. The single biggest driver of success in the coming years will be organizational structure. Yes, that’s right. Organizational structure will be a huge competitive advantage for retailers with physical stores whose future success depends on the seamless integration of their digital presence. Organizational structure in a purely physical world was always important, especially when it came to the merchant organization and the store operations reporting hierarchy. Now blend in a host of new digital complexities to an enterprise that was already complex and the importance of organizational structure stands out as a major driver of future success. The reason why is because structure drives execution and the reality of how the millions of little things that have to go right every day at a retailer get done or don’t get done. It can be a fine line and some companies are further along the path than others, but if there is an executive out there who thinks they have nailed it please let me know. Retail Leader would love to tell the story even if it isn’t the sexiest of topics. Organizational structure doesn’t translate well to a catchy headline in the business press the same way the announcement of a new CEO, president or head merchant does. It also doesn’t excite investors or Wall Street analysts, but it probably should considering organizational structure’s importance to retail success in an increasingly digital future will grow at a pace equal to or greater than the industry’s overall pace of change. Senior leadership matters and strategy matters, but retail leaders who neglect organizational structure do so at their own risk. They will be the ones wringing their hands next fall when the weather turns cool and their vision hasn’t translated to sales. RL
MIKE TROY Editor-In-Chief firstname.lastname@example.org
Retail Leader.com SEPTEMBER/OCTOBER 2017
> SOCIAL RESPONSIBILITY
A Common ENEMY THE BATTLE AGAINST CLIMATE CHANGE IS MAKING RETAILERS AND SUPPLIERS MORE EFFICIENT AND PROFITABLE, WITH THOSE BEST ABLE TO RECOGNIZE AND MINIMIZE ENVIRONMENTAL IMPACTS GAINING AN ENDURING COMPETITIVE ADVANTAGE. > By Mike Troy
A new line of aerosol cleaning products available at Wegmans Food Markets offers shoppers a unique value proposition. The Breathe brand is the first aerosol cleaning line ever certified by the Environmental Protection Agency’s (EPA) Safer Choice Program and represents a major technological advancement, according Ross Sklar, CEO of Breathe manufacturer Starco Brands. “Breathe’s air powered technology is the future of aerosols by removing the toxic, flammable and carbon footprinting propellants that make you need to open a window just to clean your bathroom,” Sklar said. “Wegmans has a history of supporting products that are both efficient and safer for people, pets and the environment.” That support has earned Wegmans the Environmental Protection Agency’s Safer Choice Partner of the Year award for the third consecutive year. Decisions to offer shoppers a choice with brands such as Breathe is recognition that consumer culture is shifting in meaningful ways with a key driver being the concept of conscious consumerism. “Brands are the new entry point for engaging consumers in climate action,” said Eric Pierce, Director of Business Insights for the NEXT Data and Insight group at the New Hope Network, organizer of the Natural Products Expo shows. “New product concepts that are positioned in part based upon their climate impact or environmental responsibility have a strong probability of success in the market.” That is a powerful statement given overall high failure rates of new items. A brand such as Breathe, or any product with a sustainability message, still needs to sell at acceptable volumes and margin rates to retain distribution at Wegmans or any retailer. Pierce believes that with every passing day the likelihood of that hap-
pening increases and he has data on his side to make the case. Shoppers are willing to pay more for responsibly produced food, with 65 percent of millennials indicating they would pay more versus only 28 percent of baby boomers, according to New Hope Network research. “It is the millennial consumer that is going to drive (sustainability) deep into commerce,” Pierce said. “Tomorrow’s consumers want brands that are of depth and character.” The Breathe brand is the type of product with a distinct point of differentiation retailers claim they want suppliers to provide and one example of how retailers can show their commitment to sustainability through the assortment they offer. Other efforts aren’t as visible or as easy to execute as adding a new product. Just ask anyone involved in the work of reducing greenhouse gas emissions, driving supply chain efficiency or eliminating food waste. Even when there is buy in at the C-level, the education, cooperation and actions of countless mid-level managers and front line employees are required to get anything done. That was the case when Wegmans introduced zero waste pilot stores and began a food waste diversion program in those locations in 2001. “It was an eye opening journey for our stores to see what is wasted. The perception is that sustainability costs more so it is important to let operators know than you are not looking to add complexity,” said Jason Wadsworth, Manager of Sustainability with Wegmans. “A new way of doing the right thing that makes jobs easier really resonates with folks on the front line because no one wakes up in the morning wanting to waste food. One of the easiest ways you can start tracking progress is to start separating organic waste. Begin at the diversion side and work back upstream to source reduction.” The work and the supply chain implications of various actions is tricky stuff so Wegmans participates in the Food Waste Reduction Alliance, a collaboration between the Grocery Manufacturers Association, the Food Marketing Institute and the National Restaurant Association. Involvement with the group helps because, as Wadsworth puts it, “We are
“A new way of doing the right thing that makes jobs easier really resonates with folks on the front line because no one wakes up in the morning wanting to waste food.” —Jason Wadsworth, Manager of Sustainability with Wegmans.
Retail Leader.com SEPTEMBER/OCTOBER 2017
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> SOCIAL RESPONSIBILITY Eric Pierce, Director of Business Insights for the NEXT Data and Insight group at the New Hope Network.
“We treat sustainability like a business function. We have quarterly updates to senior management and if we aren’t on track with our targets there is a remediation plan.” — George Parmenter, Manager of Sustainability with Delhaize America
an inch deep and five miles wide in some of the areas that are really complicated. The opportunity for the future is to work with partners focused on food waste reduction on a day to day basis.” Retailers sit in the middle of the sustainability and waste reduction equation, able to directly impact their own operations while influencing suppliers’ upstream and shoppers’ downstream behaviors. “Food waste is our number one waste stream,” said George Parmenter, Manager of Sustainability with Delhaize America, operator of stores under the Hannaford Brothers and Food Lion banners. “We treat sustainability like a business function. We have quarterly updates to senior management and if we aren’t on track with our targets there is a remediation plan.” The increased focus across the supply chain is yielding big wins, oftentimes from changed behaviors that can seem obvious in hindsight. For example, ConAgra was throwing away 1,000 tons of Snack Pack brand pudding because of a production line changeover. When a line would switch from one flavor to another a sort of mystery flavor would be produced during the transition. Rather than throw away the perfectly edible hybrid flavor the product is sold to jails. Remediating production inefficiencies is fertile ground for manufacturers and then once products are shipped new technology is helping with issues such as cold chain compliance that can further reduce losses. For example, thanks to IoT sensors retailers are able to know on a pallet by pallet level whether goods on refrigerated trailers are kept at appropriate temperatures as opposed to simply knowing if the refrigeration unit ceased operation temporarily, which could result in the loss of an entire load. “We are able to use digital information to reduce waste in a way that we never could before,” said Blythe Chorn, manager of sustainability with Deloitte Consulting. “We are really bullish on what can be accomplished with food waste reduction and we are seeing huge bottom line impacts. That’s when the CFO starts paying attention to food waste.”
Retail Leader.com SEPTEMBER/OCTOBER 2017
Consumers are also paying more attention to food waste too and retailers have simplified that task thanks to new date labeling initiatives designed to reduce the volume of edible food thrown away, according to Andy Harig, Senior Director of Sustainability, Tax & Trade with FMI. The Date Labeling Initiative joint effort between FMI and GMA began by identifying the nearly 50 variations of product date labels in use, including the dozen most commonly used, and distilling those down to two recommendations. The goal was to simplify consumers’ understanding by adopting the phrases, “best if used by,” and “use by,” so that products safe for consumption don’t end up in landfills. The effort fits with the industry’s overarching sustainability agenda and recognition that what was seen as a fringe movement as recent as 10 years ago has developed into a mainstream motivator of shopper behavior. “Sustainability is about business resiliency and the ability to operate long term. That is how you get the attention of the C-suite and the board,” said Jay Watson, Sustainability Engagement Manager with General Mills. “Responsible marketing is a big piece of it as well. It is important to have supply chain at the table with marketing to inform strategies. Big food is often synonymous with bad, but it should really mean big impact.” Indeed, large companies are in a position to leverage their scale in ways that can have a dramatic impact in areas central to climate change, an issue which promises to intensify in the coming years regardless of the Trump administration’s view on the Paris Climate Agreement. Several major events promise to keep climate change atop global agendas include the Global Climate Action Summit scheduled for Sept. 12-15, 2018, in San Francisco and a planned United Nations climate summit in New York the third week of September 2019. Experts and opponents on the issue can debate the extent of climate change, the timetable of change, the impact of humans and what if anything can be done to alter the planet’s weather. The reality for retailers and consumer goods companies is those most effective at reducing greenhouse gas emissions or broadly conserving resources will be best equipped to manage their expense structure, mitigate reputational risk and tap into shoppers’ evolving sensitivities. RL
Bythe Chorn, manager of sustainability with Deloitte Consulting.
> GROWTH AND BUSINESS DEVELOPMENT
Fresh Perspective on
MIDWESTERN RETAILER FRESH THYME FARMERS MARKET HAS THE BACKING OF MEIJER AND NEW EXECUTIVES AND DISTRIBUTION CAPACITY IN PLACE TO DRIVE GROWTH. > By Gina Acosta
Fresh Thyme Farmers Market is set to open its 68th store in early November in the southwestern Minneapolis community of St. Louis Park. The opening caps a record year of expansion for a three-year-old retailer with a growth story often overshadowed by higher profile market developments. While Fresh Thyme has managed to fly under the national radar since launching in 2014, that situation is about to change. The company earlier this year made several key executive hires and has already identified nine new store locations for 2018 which will be supportedby a 320,000-sq.-ft. distribution center that came online in late 2016. The grocery channel may be crowded, but Fresh Thyme offers a differentiated approach to shoppers in the core group of 10 Midwestern states where it operates as well as a differentiated business model. “What’s exciting about Fresh Thyme is that it is not relying on the center store as the cash machine anymore,” said Fresh Thyme Chief Merchandising Officer Mark Doiron. “The traditional grocer for years relied on the center store as the cash machine for the business. With the onset of the era of Amazon, Jet, Instacart, etc., there is a new value equation in the industry and for consumers. And the value equation now is really time: giving time back to busy consumers. As the center store has become commoditized, a lot of consumer research supports the fact that consumers are not looking for a long shop. People are time starved. They want time back. They want a smaller, more intimate shopping experience. Fresh Thyme is providing that experience.” Doiron joined Fresh Thyme in May after previously serving as chief merchant at Schnuck Market. Prior to that he spent four years as chief supply chain officer at Delhaize America and 12 years in various roles at Hannaford Supermarkets including EVP of Supply Chain and Merchandising. At the same time Doiron joined the company, Fresh Thyme hired Carol Okamato to serve as CFO. She previously served as CFO of Roundy’s Supermarkets for two Mark Doiron
Retail Leader.com SEPTEMBER/OCTOBER 2017
years and also held senior finance roles with True Value, Crate & Barrel and Allstate. Both report to CEO Chris Sherrell who founded the company in 2012 and has a strong pedigree in the natural and organic food retailing space. Sherrel spent nine years in operation roles at Wild Oats prior to its acquisition by Whole Foods and served as CEO of Sunflower Markets before it was acquired by Sprouts. Carol Okamato “Chris Sherrell’s enthusiasm and passion for the business is infectious,” said Okamato said. “We have this core team that has been in the natural and organic business from the beginning of the industry. Fresh Thyme is the newer generation of that natural and organic segment.” Sherrell calls Fresh Thyme the “natural and specialty food store of the future,” on the company’s Web site. He also claims, “We’re bringing a natural option to the Midwest with incredible values and trying to make the natural lifestyle affordable to the masses. “That’s really going to be our goal.” Doiron goes beyond that to argue that the modern consumer is at a tipping point. Shoppers don’t want to shop 50,000 square foot boxes anymore, he says, and traditional grocers, which he used to be, are facing strong headwinds. It’s not just that consumers want more fresh, natural foods, it’s that they also want to shop for those foods in the quickest way possible, he says. Fresh Thyme looks to deliver on the convenience front with smaller stores, in the range of 25,000 to 30,000 square feet. The stores are meant to resemble a farmers market, with organic and natural products, bulk items and prepared foods and a center store dominated by product that accounts for up to 30 percent of sales. The perimeter features fresh-made pizzas, a selfgrinding machine for nut butters, artisanal breads, ready-to-heat meals and house-made sausages. “Local is really important to us,” Doiron said. “You will see a lot of local produce that is from within a 50-mile radius. There will be a lot of signage in store featuring local farmers. And sometimes we even have farmers markets right out in the front of the store featuring local farmers.”
Fresh Thyme looks to deliver on the convenience front with smaller stores, in the range of 25,000 to 30,000 square feet. The stores are meant to resemble a farmers market, with organic and natural products, bulk items and prepared foods.
The other parts of the Fresh Thyme value proposition are all about location and customer service. “The Midwest has been underserved when it comes to grocery stores that focus on natural, organics, ‘healthier eating,’ etc.,” said Doiron. “We have an intimate shopping experience. Shoppers at Fresh Thyme are more likely to be engaged by a teammate than they are at other stores. We like to think of ourselves as empowering people on their path to healthy. How are we going to do that if we don’t engage with shoppers and we don’t have people who are saying, ‘Hey, have you tried this? If you don’t like it, you bring it back.’ That’s one of our core missions, that’s the value we are offering. And you have to do that though people. They are our most important part of our value equation.” Another aspect of the value equation is private brands. Since 2015 the company has introduced more than 400 private brand products and worked with Los Angeles-based design firm The Creative Pack to develop a private brand that reinforces Fresh Thyme’s core values of honesty, superior value, straight talk, and shopping ease. The brand also emphasizes clean ingredients and locally sourced products, sourcing from Midwest suppliers as often as possible. The line offers everyday staples such as canned tomatoes, cooking oil, gelato and attempts to stay on trend. “One of the hottest trends in natural foods right now is avocado oil. It’s catching on really rapidly. It’s the new coconut oil. And our private label products are doing really well, in line with consumer trends buying more private brands. So we are working with different partners to produce a private brand of avocado oil. Fresh Thyme’s aggressive expansion plans do have
their challenges, however. Competitors such as Aldi, Trader Joe’s are all chasing similar customers and traditional grocers have dramatically improved their offerings of natural and organic products. Other challenges include getting up to speed when it comes to e-commerce, delivery and store pickup. The retailer currently partners with Amazon Prime to deliver from three stores but is looking at expanding delivery to other areas. “Company-wise our strategic priorities for the next year include efficiency,” Okamato said. “We are currently evaluating a click and collect program. You don’t want to do it unless you can do it well. These e-commerce programs change the economics of the store performance. Most stores are not set up for the efficient picking of orders. It’s hard to take a store that was designed for physical retail and flip it and make it work for e-commerce. Every retailer is evaluating how to do that and still delight the customer and still make it economical. Also we have a long way to go to get (our DC) to where we need it to be in terms of efficiency. We are also going to focus on delighting customers and getting the mix of our items right. Our strategic focus is to get everyone up to an operational excellence point because we’ve grown so fast.” Fresh Thyme also has somewhat of a secret weapon in that it was founded with support from Meijer, the highly regarded operator of 230 supercenters. Many of those stores are located in the same states as Fresh Thyme but they are much larger, offer an extremely broad range and satisfy different shopper needs. How much or little Fresh Thyme benefits from its Meijer relationship isn’t clear and the companies provide few details. “Our funding is from a Meijer organization, not necessarily the stores,” Okamato said. “Yes, we are connected. But we can have as much independence and autonomy as we want. We do have a board of directors that we answer to and we do have an outside board member in addition to some Meijer members.” RL SEPTEMBER/OCTOBER 2017 Retail Leader.com
> GROWTH AND BUSINESS DEVELOPMENT
Southeastern Grocers’ Growth Format? WITH A CURIOUS BLEND OF PROMOTIONAL INTENSITY, EVERYDAY LOW PRICES AND A LOT OF YELLOW PAINT, HARVEYS SUPERMARKET COULD HELP SOUTHEASTERN GROCERS GROW. > By Mike Troy
Conventional grocers are in the fight of their lives with all manner of competitors vying for share in the huge but low margin world of food retailing. Between Aldi and Lidl, Walmart and Kroger, expanding e-commerce options and non-traditional food retailers such as dollar and drug stores, competition has never been more abundant. Then there is the unsettling thought of how the market will be impacted by the combination of Amazon’s supply chain prowess and Whole Foods’ physical footprint. What’s a conventional grocer to do? If you are Southeastern Grocers the answer is to breathe new life into aging WinnDixie stores by converting them to the company’s Harveys Supermarket banner. That’s what the company did over the summer when it expanded the Harveys banner in Florida by converting seven former Winn-Dixie locations. The change gave Harveys a
A key element of the Harveys merchandising strategy is a large dollar zone department featuring the aggressive presentation of 1,200 items.
Retail Leader.com SEPTEMBER/OCTOBER 2017
total of 18 locations in Florida and boosted the banner’s total to 77 locations in a four state trading area that also includes Georgia, North Carolina and South Carolina. The latest incarnation of Harveys is based on a value oriented prototype introduced in Jacksonville, Fla., on May 2016 that was followed by a revised prototype that opened in Charlotte, N.C., in July 2016. Last November, the new pricing scheme and design elements featured in the prototype were extended to all Harveys locations. The newest round of store conversions show how a company that is at a competitive disadvantage to larger rivals in many respects ranging from store locations and financial resources can transform tired real estate with simple design features, signing and a new pricing strategy to appeal to price sensitive shoppers. The combination makes Harveys an unusual store in many respects. For example, an understated exterior façade is painted hunter green, but inside shoppers are met by a blast of yellow and red and bright lights. The outer walls are painted yellow, which makes perimeter departments identified by black letters really stand out. Retailers frequently use yellow and red to convey promotional intensity and Harveys has really outdone itself on that front. One of the store’s signature merchandising elements is the “$1 Zone.” Harveys created a large valley through the center of the store where low tables are flanked by gondolas to create a sort of dollar store within the store. The $1 Zone with its 1,200 items across all types of categories is clearly identified by large red and yellow signs and items within the department are further promoted with hundreds of oversize shelf edge signs. The promotional intensity of the $1 Zone is offset by other areas of the store where Harveys attempts to convey a mix of pricing messages. For example, extensive signing touts prices on
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> GROWTH AND BUSINESS DEVELOPMENT
Various signing tactics are used throughout Harveys to showcase a blend of promotional intensity and everyday low prices.
725 products that are “low and staying low,” along with Harveys’ slogan of, “that’s a promise.” Another 1,800 items are promoted as “great low price” items. The retailer also offers a basket building promotion featuring 75 products called “Pick 5,” which allows shoppers to buy five items for $19.95. “Due to the overwhelming positive customer response of recent Harveys Supermarket openings and extensive customer listening sessions we have identified that our Harveys Supermarket banner is best tailored to provide the service, products and prices our customers in the area desire,” Anthony Hucker, Southeastern Grocers President and CEO, said when the recent round of stores debuted. Overall, Harveys offers a merchandising presentation that is functional and highly promotional and most important, different from Winn-Dixie, a banner that has been on a long-term downward trend. In the mid-1990s, Winn-Dixie was one of the nation’s leading food retailers, operating more than 1,200 stores through the South and southeastern states with annual sales of around $14 billion. But then it ran into the combination of Publix, Walmart and increased availability of food at all types of retailers, which had the cumulative effect of eroding customer traffic. Walmart and Publix both grew rapidly and gained market share in core Winn-Dixie markets. The company would close more stores and by early 2005 had filed for bankruptcy. It emerged from bankruptcy in 2006 with 522 stores in five southeastern states. By early 2012, Winn-Dixie had shrunk to 482 locations and it was acquired by Bi-Lo for $559 million to create Bi-Lo Holdings. The following year the combined company acquired 155 stores from Delhaize Group, including 72 Sweetbay, 72 Harveys and 11 Reid’s locations. The Sweetbay locations, which had once operated under the Kash ‘n Karry banner, were converted to Winn-Dixie stores and the Reid’s locations were converted to Bi-Lo stores. The Harveys stores, which Delhaize had acquired in 2003, remained Harveys. In late 2013 Bi-Lo Holdings also acquired 21 Piggly Wiggly stores. 16
Retail Leader.com SEPTEMBER/OCTOBER 2017
In 2015, Bi-Lo Holdings was renamed Southeastern Grocers and then last year it began experimenting with repurposing Winn-Dixie locations for other banners. The Hispanic concept Fresco y Mas debuted in Florida and now numbers 11 locations and the recent Harveys conversion has further eroded the Winn-Dixie store count. Whether the trend continues now rests with Southeastern Grocers’ new CEO, Anthony Hucker. He joined the company in March 2016 as COO and was elevated to the CEO role in July to replace Ian McLeod who resigned after two years. Prior to McLeod, the top job had been held by Randall Onstead since 2012. Hucker, like McLeod and Onstead before him, brings a wealth of grocery experience to Southeastern Grocers. He previously spent two years as President and COO of Schnucks Markets, two years as President of Ahold USA’s Giant Food division, and prior to that seven years with Walmart in a variety of roles, including vice president of strategy and business development at the time of his departure in 2011. He also spent nearly a decade with Aldi in the United Kingdom. Hucker will need all the merchandising, marketing and operational skills acquired throughout his career to ensure Southeastern Grocers remains relevant to shoppers in the face of intensifying competition. Conversion of additional Winn-Dixie locations to the Harveys banners represents a relatively low cost way, judging from the limited improvements at recently converted stores, to bring renew shopper interest. At last count, WinnDixie operated 495 stores, of which 358 are located in Florida, where the brand is even further behind the likes of Walmart and Publix than it was a decade ago, not to mention newer market entrants. RL
Harveys made sure that passing motorists were aware that its newest store in Tampa, Fla., had opened.
Going GLOBAL and LOCAL A RISING TIDE OF MULTICULTURALISM HAS FOREVER CHANGED THE AMERICAN PALATE AND CREATED GROWTH POTENTIAL FOR RETAILERS. > By Gina Acosta
When The Fresh Market re-merchandise 10 Atlanta area stores in early August it made sure to let shoppers know that international foods were a key part of the effort. An expanded offering of exotic items was seen as a way for the operator of 176 stores in 24 states to deliver on its goal of creating an inspiring environment that takes shoppers on a culinary journey. It’s not exactly a new trend. Food retailers have long offered select items in key ethnic categories such as Mexican or Chinese. However, the trend has gained momentum of late. Two years ago Kroger launched its international themed HemisFares private brand and The Fresh Market’s more recent action put it among the growing number of retailers looking to capitalize on one of the most powerful trends influencing consumer spending: the adventuresome, sometimes multicultural eater. Never before have so many Americans been so willing to experiment with new flavors and types of food even as they crave locally grown and sourced products. Fueled by the rise of multiculturalism, changing demographics, foodie culture, a proliferation of celebrity chefs and shows such as “Bizarre Foods,” retailers are responding with expanded assortments of unique, international and exotic items. A report on ethnic foods from market research firm Statista notes that the ethnic food category will reach $12.5 billion by next year. A NaCesar Melgoza, CEO of Geoscape
Retail Leader.com SEPTEMBER/OCTOBER 2017
tional Restaurant Association study went on further to find that ethnic foods have become a part of Americans’ regular diets, with 4 in 5 consumers eating international foods on a consistent basis. And according to a 2017 Nielsen report, “A Fresh Look at Multicultural Consumers,” shoppers looking for multicultural foods make 3 percent more trips to stores with fresh items and spend 4 percent more annually on fresh items, leading to a $2.2 billion opportunity for retailers. To capitalize on the trend requires retailers to look beyond traditional supplier relationships for new sources of inspiration and unfamiliar flavors. For example, retailers such as Trader Joe’s are partnering with little known supplier Inka Crops to supply them with one of the hottest snacks in food retail: plantain chips. “We work with Trader Joe’s on their plantain chip product, which has proven to be very popular and a great seller for them. We are trying to get other retailers, such as drugstores, to cash in on the plantain chip trend,” said Ignacio Garaycochea, vice president of sales and marketing for Lima Peru-based Inka Crops. “Plantain chips are healthier and less salty than potato and other chips, and that’s what consumers are looking for. You can also use them to dip in hummus and other spreads.” Garaycochea was one of the dozens of suppliers looking to connect with retailers this summer when ECRM held its annual International Foods show in Orlando. The event provided a convenient venue for retailers to discover new sources of supply and insight into global flavor trends with the potential to influence U.S. consumers. Manufacturers from around the world showcased ethnic foods of dry grocery, nonperishable and beverages to U.S. retailers, distributors and importers. Foods such as ramen, avocado oil and
Brazil nut bars were on display and ready for sampling. Garaycochea said international products that are “rich in proteins, vitamins, minerals and fiber” are also on trend. While retailers such as Kroger, Trader Joe’s and The Fresh Market are working to leverage the international opportunity, others are lagging. “Retailers tend to think in terms of the rearview, what sold last year, instead of what is going to sell over the lifetime of that consumer,” said Cesar Melgoza, CEO of Geoscape, a data analytics firm that works with clients such as Kroger, Southeastern Grocers, Nestle and Walmart. “Retailers need to look at the trajectory of spending for the consumer. Lack of planning for the multicultural consumer is laying the groundwork for ethnic chains such as Northgate, Fiesta, H Mart and others to take the multicultural dollars and expand. If I were an investor, I would buy all these ethnic chains and open a superstore that provides a multicultural experience like no other retailer. Non-multicultural consumers would also shop there, because all Americans are eating more multicultural foods,” Melgoza added. What Melgoza is talking about speaks to an important point: It’s not just multicultural consumers seeking multicultural foods. All Americans are increasingly seeking ingredients such as fish sauce, lemongrass and sriracha peppers on grocery shelves. Retailers have a chance to target these consumers by creating even larger sections of the store geared toward multicultural foods, sponsoring in-store tastings, and tailoring their assortments to the needs and wants of consumers living in the trading area of each store.
Publix makes international foods easy to find with clear signing that identifies country-specific and regional offerings.
U.S. CONSUMERS LOVE INTERNATIONAL FOODS 80% 70%
Consumers eat at least one ethnic cuisine per month
Consumers eat a wider variety of ethnic cuisines now than five years ago
Consumers customize ethnic cuisine dishes to fit their taste
Consumers say the ethnic foods they like to eat are tied to their ancestry or heritage
Consumers tried a new ethnic cuisine in the last year
Consumers like trying unconventional ingredients
SOURCE: Global Palates Report, 2015. National Restaurant Association.
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> STRATEGY That was a key finding of a recent study from LoyaltyOne that showed 61 percent of U.S. shoppers are not finding enough ethnic food or ingredients at their main grocery stores, and 59 percent shop at three or more stores regularly just to find everything they need for recipes. And while 85 percent of ethnic shoppers revealed that they would cook traditional foods more often if they could find the proper ingredients at grocery stores, 65 percent of non-ethnic shoppers said they’d cook more “To be successful, multicultural foods if their stores had a better variety. retailers must “In order to tap this critical understand the market, retailers need to rethink their delivery and assortment importance that strategies of fresh products being offered to today’s increasingly culturally relevant, multicultural shoppers,” said fresh offerings play Courtney Jones, VP of multicultural growth and strategy in the multicultural at Nielsen. “To be successful, retailers must understand the shopper landscape. ” importance that culturally rel—Courtney Jones, VP of multicultural evant, fresh offerings play in the growth and strategy at Nielsen multicultural shopper landscape. Retailers must consider the multi-ethnic tastes of their current and desired customers and recognize that the palates that favor multicultural flavors are influencing the taste preferences of non-Hispanic whites and society at large.” While more Americans than ever before are seeking multicultural flavors, the desire for novelty and variety is even higher among millennials, with 32 percent of them saying that eating multicultural food is very important, according to a 2016 Harris Poll. Meanwhile a new generation is about to take the food world by storm, adding even more demand for multicultural foods. For generation Z, defined as those younger than 22, the most ethnically diverse U.S. generation ever, ethnic foods are the norm. As all of this multiculturalism continues to grow, retailers are challenged to do more to keep up with global food trends, particularly when it comes to specific cuisines. Mexican food, in particular, is undergoing a transfor-
“We found that the Mexican food available in stores simply wasn’t cutting it. ” —Christopher Jane, co-founder and CEO of Montana Mex
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mation. Shoppers have gone from asking for standard Tex-Mex burritos to demanding more authentic regional specialties and exotic, celebrity-chef driven ingredients. Ingredients such as tomatillos, chorizo sausage, Latin cheeses (cotija, queso fresco), and chipotles en adobo (smoked jalapeños in a spicy sauce) are showing up in the Latin category, as well as in cross-cultural concepts. One example of a cross-cultural concept showed up at the ECRM show in the form of Mexican ketchup. The product, made by a company called Montana Mex, is a textured artisanal ketchup made with organic agave, organic maguey, sea salt and a Mexican spice blend. “We found that the Mexican food available in stores simply wasn‘t cutting it. Every product was full of chemicals and preservatives that you need a science degree to pronounce,” said Christopher Jane, co-founder and CEO of Montana Mex, a Montana-based brand of clean label and chemical-free Mexican inspired food products currently in distribution in specialty grocery, online and on the TV with the Home Shopping Network. Other suppliers at the ECRM show offered samples of such hot and trendy foods as Korean kimchi and gochujang, Brazilian cheese breads, Greek fruit compotes, Spanish sauces made with ground nuts and Peruvian corn pops. But throwing some of this product on the shelf without the proper strategy is not necessarily going to result in sales growth, according to Geoscape’s Melgoza. “Walmart is doing a good job. The shoppers in their trading areas are increasingly demanding more multicultural foods,” Melgoza said. “But other big retailers need to do better than just put up a sign that says ‘Hispanic food’ and build out an aisle of product. They need to look at the data on the shoppers near their stores and realize what they are buying.” For retailers and suppliers, the bottom line will always be sales, no matter which ethnicity or group is buying. However, as the eating habits of Americans become more multicultural, the need to find out just who is eating what will become a more and more critically important task. RL
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LIDL Gets Physical THE WORD DISRUPTION, SO OFTEN ASSOCIATED WITH DIGITAL INITIATIVES, HAS A PLACE IN THE PHYSICAL WORLD TOO. JUST LOOK WHAT LIDL IS ATTEMPTING TO DO. > By Mike Troy
While many U.S. grocers are wrestling with the expense and operational considerations of executing home delivery or click and collect, Lidl offers neither. Since the European food retailer opened its first U.S. stores this past June the company has focused on operational basics, refining product assortments and extending its unique retail concept to a larger number of markets than originally expected. By the end of September Lidl had opened more than 30 stores in Virginia, North Carolina, South Carolina and Georgia. Initially, the company said it expected to open 20 stores this summer enroute to opening up to 100 stores across the East Coast by next summer. The 2018 growth target now looks to be conservative with the surest indicator being Lidl’s expansion of supply chain infrastructure. In addition to its headquarters near Washington, D.C., Lidl has regional headquarters and distribution centers in Spotsylvania County, Va.; Alamance County, N.C., Cecil County, Md., and recently announced a fourth location in Bartow County, Ga., northwest of Atlanta. That’s a lot of capacity for only 100 stores and the investment is noteworthy because Lidl’s emphasis on physical growth comes as virtually every other U.S. food retailer has curtailed expansion in favor of applying capital budgets to remodeling activity and digital efforts. Lidl has an app, but functionality is limited to creating and sharing lists, browsing promotions and having savings applied at checkout by scanning a code. Lidl may follow the digital path of other grocers, but for now the company is intent on physical expansion with a differentiated format and A Lidl employee wears a shirt encouraging merchandising strategy. shoppers to “rethink grocery.”
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With more than 30 locations now opening, Lidl has exceed initial expansion targets and is on track to surpass a summer 2018 goal to have 100 locations open.
“When you shop at Lidl, you experience less complexity, lower prices, better choice and greater confidence. For us, that’s grocery rethought,” Brendan Proctor, President of Lidl U.S., explained in a magazine distributed to shoppers at store openings. Lidl encourages shoppers to “rethink grocery” and goes to market with a set of merchandising, marketing and store operations attributes, none of which is unique in their own right, but collectively make the Lidl concept distinctive. For starters, the stores all measure 20,000-sq.-ft. and boast an identical layout, which makes it easy for shoppers and employees. Roughly 90% of the limited assortment are Lidl brand items, similar to Aldi’s strategy. The private brand emphasis means Lidl owns the supply chain and can customize packaging and case sizes for shelf ready display in stores, minimizing labor costs. Other retailers seek to apply standards, but are dependent on compliance from brands to realize the efficiency benefits. Where things start to get a little weird with Lidl, from the standpoint of conventional grocers anyway, is the retailer’s approach to general merchandise and application of the treasure hunt philosophy. Lidl wants shoppers to expect the unexpected and promotes a “get it before it’s gone” mentality. For example, one recent ad featured an eight gallon electric air compressor for $99 and a whole
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A standardized store layout, above, featuring six aisles can be found in every Lidl store, keeping things simple for shoppers and employees. Sharp prices on bulk displays, top right, is a key aspect of Lidl’s overall merchandising strategy. A frequently rotated offering, right, of temporarily reduced prices helps bring a treasure hunt atmosphere to the store experience.
range of attachments such as wrench and chisel. Another application of the treasure hunt can be found in apparel, a category the typical grocer steers clear of. Lidl has a deal with supermodel, designer and America’s Got Talent cohost Heidi Klum to offer seasonal apparel collections. The offering of general merchandise and treasure hunt approach is probably the one factor that most distinguishes Lidl from conventional grocers. That could be a good thing for Lidl considering how successful the strategy has been applied at retailers such as Costco, TJX Companies and Dollar Tree. Each drives traffic with sharp values on limited quantities of merchandise and that approach has provided somewhat of a competitive moat relative to e-commerce retailers. Lidl also relies on the familiar, but effective, tactic of limited duration price promotions. Lidl’s version is called Fresh 5 and derives its name from price discounts on five items that change every Monday and Thursday.
THE EASY PART IS OVER Lidl’s differentiated approach and newly constructed stores have piqued shoppers’ curiosity, which is evident from the crowds of shoppers kicking the tires at the newest retailer in their community. And Lidl knows how to enter new markets, considering the company operates more than 10,000 locations in 27 countries. There are many reasons to think Lidl will be successful in the U.S., but it is worth remembering that international expansion has tripped up many a big name retailer who felt the same way about their prospects. Just ask Walmart, Tesco and Target. Walmart was at the top of its game in the 1990s when it entered Germany via acquisition. Tesco entered the U.S. market with a concept called Fresh & Easy in 2007. Target was also performing well when it made an acquisition in 2011 to 24
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facilitate its entry into Canada. In each case, the companies invested billions only to exit the markets after failing to win over shoppers. It’s too early to say whether a similar fate awaits Lidl or if it will be a runaway success story, but one thing is for sure. The company’s hardest work is ahead of it as it refines product assortments and marketing efforts to wrest shoppers away from other retailers intent on growing their own share. The company also has to live up to the “rethink grocery” hype it has created by executing operational basics of keeping stores clean, in stock and adequately staffed. To be sure, it is still early days for Lidl but its first year performance will tell whether it is able to increase sales from new shoppers while continuing to attract others while all of its competitors are attempting to do the same thing. That is a huge challenge, but so too is the company’s all-in attitude on physical stores. Lidl stores, while differentiated in many respects, are at their core another “place” to buy food. The addition of more places to buy food comes at a time when increasing numbers of shoppers define place as the palm of their hand. It’s why retail leaders such as Walmart and Kroger have quickly ramped up their click and collect capabilities and now offer the service at more than 1,000 locations respectively. Lidl may eventually up its digital game, but for the time being retailers in the eastern states Lidl has targeted for expansion have to cope with another source of customer traffic leakage. RL
MIKE HARDY, Chief Executive Officer,
“VR is having a huge impact on retail innovation because of its’ inherent ability to provide risk-free conceptualization and evaluation of new in-store concepts.”
Preparing for Next Gen Commerce with Immersive VR Retail Leader: Where does virtual reality technology stand right now in the grand scheme of retail innovation? Mark Hardy: It’s hard to believe that less than a decade ago, VR was mostly familiar only to those within the gaming community. Since then, it has evolved by leaps and bounds, and has become one of the hottest topics in tech. When it comes to retail, consumer-facing applications are still in the early stages. Virtual arcades have popped up at malls across the globe, and companies like Alibaba are dabbling in VR online shopping; but until we see personal adoption of VR headsets become widespread, by and large virtual shopping experiences won’t be retail’s main focus. However, from a business standpoint, VR is having a huge impact on retail innovation. Because of its’ inherent ability to provide risk-free conceptualization and evaluation of new in-store concepts through virtual simulations, numerous innovative organizations like Walgreens, Kellogg’s, and Anheuser Busch have successfully introduced VR solutions into their business processes. RL: What does “immersive” VR mean, and how is it relevant to the retail industry? MH: VR head-mounted displays, such as the Oculus Rift and the HTC Vive, allow the viewer to essentially step into a new dimension—so while your body might remain sitting in a chair, for all intents and purposes you are experiencing yourself within a completely different place. This differs from augmented reality—which superimposes artificial stimulus on top of the user’s view of the real world—or from
even 360-degree videos, which don’t allow you to interact with the virtual image or video you are experiencing. In immersive VR, you can pick up objects, communicate with others who share the space, and alter the environment. From a business standpoint, immersive VR allows retailers and manufacturers to visualize new concepts from the perspective of a would-be shopper. Using head-mounted displays, they can collaborate and present concepts with internal and external teams in order to improve communication and gain buy-in in a competitive market—all before creating anything in the real world. RL: How are Millennial shoppers driving the adaptation of immersive VR solutions for retail? MH: Millennial shoppers are driving everything about the retail industry right now—they ushered in organic food trends, they influenced the emergence of direct-toconsumer channels, and they were the first adopters of retail technologies like rewards apps, location-based push notifications, and food delivery services. But they also want experiences when it comes to retail, as seen with the popularity of wine bars within grocery stores, and free fitness classes while shopping for athletic gear. Forward-thinking companies realize this, and are adopting immersive VR in order to get into the minds, so to speak, of those Millennial shoppers—we can see what they see, learn what spurs engagement, and deliver those findings to the decision makers. For more information on how immersive VR can help drive innovation at retail, visit www.incontextsolutions.com.
> COVER STORY
The Hardest Job in Retail PLENTY OF CEO’S COULD CLAIM TO HAVE THE HARDEST JOB IN RETAIL, BUT NONE FACES THE UNIQUE SET OF CHALLENGES AHEAD OF SHELL RETAIL EXECUTIVE VICE PRESIDENT ISTVÁN KAPITÁNY. > By Mike Troy
Future proofing any retail business is a tall order these days given the pace of technology driven change and rapidly evolving consumer preferences. It is especially complicated for global energy company Royal Dutch Shell and its expansive Shell Retail Operation led by Executive Vice President István Kapitány. The 30 year Shell veteran leads a team that oversees a global network of 43,000 locations in 80 countries with 500,000 employees. To add an extra layer of complexity, Shell’s operating model includes a mix of company owned, dealer owned, wholesale and licensed stores that varies by geography. Shell’s iconic logo is already found on more locations globally than Starbucks or McDonalds and the company has ambitious expansion plans to execute at a time when the internal combustion engine is under assault. That combination of scale and complexity against a backdrop of societal concerns would make Kapitány’s job hard enough, now throw in a lofty profit improvement goal. Kapitány has until 2025 to increase the profit
Gasoline isn’t going away anytime soon, but Shell Retail is applying a fuel agnostic approach as it looks at long term mobility trends.
contribution of Shell Retail’s non-fuel business to 50% from a figure well below that currently. The company doesn’t disclose the actual number but Kapitany concedes the profit goal is aspirational. He also notes the company is almost at the 50% goal in some countries, so he knows it is doable, even if it has a long way to go in a market like the U.S. “We are always adapting our retailing capabilities to the changing world and believe it is a great opportunity for us because of the scale and size of the business,” Kapitány said. “Some markets are close to the 50% goal and some are far away, but one of the benefits of Shell’s global scale is that we can learn from each other. Whatever works in one country we can transfer that knowledge to another country.” For example, the company operates a service oriented concept called Shell Select in The Netherlands that is comparable to the highly regarded Wawa convenience stores in the U.S. Shell’s operating model in the U.S. is different than The Netherlands but the company is looking to make changes that would facilitate expansion of the Select concept in the U.S. “I would say that Shell Select in The Netherlands is kind of like the top end food and coffee convenience place to go in the market, similar to a Wawa. We’re looking at how we bring that Shell Select concept to the United States,” Kapitány said. That’s an advantage Shell Retail has over some U.S. only retailers, many of whom have a broader product offer than Shell, and its speak to the attitude required of C-level executive looking to future proof their business. Doing so requires peering into the future further than others and imagining possibilities. Most U.S. retailers did a poor job of this 15 years ago when it came to e-commerce and recognizing the huge digital shifts changing how shoppers interact with retailers and brands. They have been trying to catch up with shoppers ever since. Royal Dutch Shell and the Shell Retail division don’t want to make the same mistake. That’s why the company openly talks about the need to transform its retail business, is aggressively expanding new product and service offerings, experimenting with
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technology and preparing to offer a broad range of fuel types that will power vehicles in the future.
WHERE THE GROWTH IS The Shell brand has a dominant presence in market like the U.S. with 14,000 locations, Brazil (6,000), Japan (3,300) and Germany (2,000), but in some of the largest markets in the world the brand is just getting started. “The United States, Brazil, Japan, Germany are already very, very strong, and we would like to be building our Chinese, India, and Indonesian, Russian and Mexican footprint to similar levels. We are working to grow them To stay connected to retail operations, Shell Retail EVP István Kapitány and fairly quickly,” Kapitány said. his 120-member executive team work full shifts in the field every quarter. It has a long way to go. In China, there are only 1,200 Shell locations and there are only 100 sites in edicts from the United Kingdom, France and India. Russia has several hundred locations and China are designed to curtail the use of internal the first Shell branded location recently opened combustion engines and some automakers in Mexico. As Shell grows its global footprint are embracing the shift. Hybrids and electric the company is being fuel agnostic and emvehicles have improved dramatically and are bracing the role progressive societal forces are getting better all the time with high end models placing on the company regarding its environoffering amazing performance. Tesla offers mental impact. a version of its acclaimed Model S that costs “We’re very keen now on electric charging,” upwards of $100,000 and is scary fast, capable Kapitány said. “We believe that as the number of 0-60 miles per hour in 2.5 seconds. Tesla’s of electric cars increase high powered electric mass market move came this summer with the charging will grow and the time required for introduction of its lower cost Model 3. By year electric recharging will come down significantly end, the company expects to be manufacturing to around nine or ten minutes.” 5,000 Model 3s per week in the U.S. and said it Kapitány sees that as a fantastic opportunity will double that capacity in 2018. for Shell because the user experience will be While Tesla and its high profile founder comparable to filling up with gasoline today. Elon Musk command a lot of attention, other “We see an amazing opportunity for us to manufacturers have made electrification moves participate in the change in mobility industry of their own. Nissan earlier this year sold its and the world, as we’re going forward. It is very 250,000th electric vehicle, the Leaf, earning it clear to all of us that an energy transition is the distinction of America’s best-selling electric underway for mobility. It will not change from vehicle. A new version of the vehicle is due Friday to Monday, but it will change. It needs to this fall. Meanwhile, an automotive press long change, and it must change, and we would like enamored with all things internal combustion, to be playing our part in the change.” has embraced electric vehicles. When the Chevy The big drivers of change are governments Bolt EV was named Motor Trend’s 2017 Car around the world lining up against internal of the Year the publication gushed that, “the combustion engines and rapidly growing congroundbreaking Chevrolet Bolt EV is the car sumer acceptance of electric vehicles. Various of tomorrow. Today.” The Bolt’s combination
Kapitány concedes the profit goal is aspirational, but notes the company is almost at that point in some countries so he knows it is doable, even if it has a long way to go in a market like the U.S.
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> COVER STORY “I absolutely believe that Shell fuels are different and better than any other fuels.”
In her role as Vice President of Retail for the Americas, Sidney Kimball oversees a U.S. network that includes 14,000 Shell branded locations.
of range (238 miles) and priced (less than $30,000 when adjusted for a $7,500 federal tax credit) has made just about every other electric vehicle on sale obsolete, according to Motor Trend. One of the most significant electrification moves will come in 2019, when Volvo Cars CEO Håkan Samuelsson has drawn a line in the sand stating that every car the company makes will have
emission vehicle infrastructure is the largest of its kind ever made and will revolutionize charging infrastructure in the U.S.,” said Walter Wahlfeldt, an executive vice president with JLL. “We’re currently looking for accessible and regularly trafficked real estate locations that support drivers for the long-term and will keep the network of charging stations sustainable. The stations are brand neutral and are designed to service fast-charge capable EVs now and into the future.” The creation of a more accessible charging grid could be a boon for all types of retail uses since Electrify America will install, operate and maintain chargers at its expense. JLL is initially seeking 450 sites for 2,500 universal chargers at locations such as malls, restaurants, retailers, gas stations, mixed-use developments and hotels. EA plans to make its investment over four 30 month cycles with $800,000 million spent in California and $1.2 million spent elsewhere in the U.S. It is the largest investment of its kind and designed to promote zero emission vehicle adoption by reducing charging anxiety and increasing convenience.
an electric motor. “This announcement marks the end of the solely combustion engine-powered car,” Samuelsson said. “Volvo Cars has stated that it plans to have sold a total of one million LOWER FOREVER electrified cars by 2025. When we said it we meant it.” If Kapitány has the hardest job in retail (Retail Leader’s asserRegistrations of electric cars worldwide hit a new record tion, not his) he certainly doesn’t act like it and isn’t an obvious in 2016, with more than 750,000 unit sold as sales advanced 40%, according to an organization known as the Clean Ener- choice for that distinction given his relative anonymity in U.S. retailing circles. Someone like Sears Holdings CEO Eddie gy Ministerial. The group consists of government members Lampert has what many consider an impossible job. He’s been from 10 countries (Canada, China, France, Germany, Japan, trying to turn Sears and Kmart around since he engineered a the Netherlands, Norway, Sweden, the United Kingdom merger of the floundering retailers in 2004. Another option and the United States) and recently set an ambitious goal to promote an electric vehicle penetration rate of 30% penetra- could be Toys “R” Us CEO Dave Brandon. He joined the comtion by 2030. If that figure is to be achieved it will require changes to the refueling infrastructure, creating new opportunities for Shell Retail and others. The electrical infrastructure in the U.S. is will get a huge boost in the coming decade thanks to a bizarre turn events. After Volkswagen Group was caught cheating on emissions one component of a lawsuit settlement involved creation of a subsidiary called Electrify America (EA). The Reston, Va.-based entity plans to spend $2 billion over 10 years to build out and strengthen the zero emissions vehicle (ZEV) infrastructure across the United States. EA recently selected JLL, one of the nation’s largest commercial real estate firms, to identify and provide site feasibility studies for the installation of fast charging sites along high-traffic highway corridors and community-based charging locations in 11 metropolitan areas in the Northeast from Boston to Seattle, across California, and in Texas and Oklahoma. A prototype Shell station set to open in the U.S. in 2018 will be modeled after European outlets that feature a range of fuel types, expanded product offerings and foodservice. “Electrify America’s investment in zero
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> COVER STORY Shell Retail’s goal of non-fuel categories accounting for 50% of profits means it needs to expand assortments and sell a lot more food.
pany a little over two years execute a turnaround, but instead filed for bankruptcy in September and heads into a holiday season facing intense competition from Walmart, Amazon and Target. Jeff Genette became CEO of Macy’s in early 2017 and is executing a wide range of strategies designed to prove a place remains in the retail landscape for a mall-based, mid-tier department store operator. Then there is Kroger CEO Rodney McMullen. As head of the nation’s largest supermarket chain, he’s dealing with intense price competition, expense challenges of a unionized workforce and a massive share price decline caused by Amazon’s acquisition of Whole Foods. Each of these executives face considerable challenges, but their core offerings of food, consumables and clothing are necessities of life. So is fuel, but demand for fuel and the types of fuel are expected to change dramatically in the coming years. People will continue to eat and wear clothes in the future, but regularly filling up a car with gasoline is a behavior that is expected to diminish greatly and who knows what happens to the price of oil. Shell doesn’t. That’s why the company is running its overall business with a “lower forever” attitude toward oil prices. “We do not want to have the mindset that higher oil prices are around the corner to help us out. In terms of practical planning, we take a very conservative outlook,” Shell CEO Ben van Beurden told Bloomberg after the company released its second quarter results. The reality is no one really knows what the price of oil will be in 10 or 20 years. The annual U.S. Energy Information Administration offers a wide range of estimates in its annual report released in September that assesse long-term world energy markets. EIA modeled projections of what may happen given certain assumptions under different scenarios if the price of North Sea Brent crude in 2016 dollars reaches $43 a barrel by 2040, compared with $109 a barrel in the reference case and $226 a barrel in the high oil price case. The
use of refined petroleum and other liquid fuels in the transportation sector is forecast to increase through 2040, but their share decreases from 95% to approximately 88% as the use of alternative fuels increases, according to EIA. Motor gasoline, including biofuel additives, remains the primary fuel for transportation, accounting for 36% of the world’s transportation-related energy use in 2040, according to the group. Relying on the government to forecast the future, especially something with the historic volatility of oil prices, is not a good strategy on which to stake the future of a multi-billion business. Lower forever may not come to pass and the pace of vehicle electrification could happen much sooner. Shell CEO van Beurden has said his next vehicle purchase will be electric. Either way, Shell and its global retail chief Kapitány and U.S. retail head Sydney Kimball are doing the hardest thing there is to do in retail: reposition the business to capitalize on growth opportunities while maximizing sales and profit performance in the current landscape. For example, Kimball’s single biggest priority in the U.S. is promoting increased loyalty to the Shell brand through the company’s enriched Fuel Rewards program. Launched on June 5th, Shell expanded the existing program to give Fuel Rewards members instant gold status for six months which allows them the perk of a five cent per gallon price reduction. The program and Shell’s high end fuel branded as V-Power are near and dear to Kimball’s heart. She served as the company’s premium fuels marketing manager several years ago and oversaw the global rebrand to V-Power and chafes at the notion that gas is gas. “I absolutely believe that Shell fuels are different and better than any other fuels. In my role as premium fuels manager, I oversaw research and development. Our claims about having the best cleaning power, it really helps in terms of engine wear,” Kimball said. And when it is time to fill up, Shell Retail is experimenting with technology and partnering with car makers to transform the experience. “We’re testing a mobile app that allows you to buy your fuel from the car and not have to pull out cards,” Kimball said. “We’re on that journey and there is optimism that we’ll be first in some areas and fast followers in others.” Kapitány doesn’t worry much about filling up these days. He walks to work at Shell’s London headquarters, a city with stringent pollution regulations designed to curtail vehicle use in the urban core. It is the type of commute that allows Kapitány to think differently about the future of mobility, energy and convenience retailing. RL
Retail Leader.com SEPTEMBER/OCTOBER 2017
10/12/17 12:58 PM
> HUMAN CAPITAL
The Autonomous Associate A ROBOT REVOLUTION IS COMING TO RETAIL WITH ALL MANNER OF AUTONOMOUS DEVICES POWERED BY ARTIFICIAL INTELLIGENCE REDEFINING STORE OPERATIONS AND THE SUPPLY CHAIN. > By Mike Troy
Robots aren’t what they use to be. They are a lot better and capable of performing a wide range of tasks that require concentration, repetition, accuracy and speed. In other words, a lot of the things that humans aren’t very good at or don’t particularly like doing. The field of retail robotics promises to grow exponentially in the coming years as operators look to control labor costs, improve efficiency and leverage technology in new ways. The industry’s reliance on lowskilled, hourly workers makes it a prime candidate for increased automation and the inevitable displacement of workers. This is a tricky issue for retailers, especially those who are expanding, and like to tout job creation and opportunity for advancement as a benefit of joining the company. Even when technology is leveraged in ways that lead to the elimination of roles — think selfcheckout — job loss concerns are defused with claims that the increased use of technology allows labor hours to be deployed to customer service functions. However, even customer service functions are prone to displacement. Consider the experiments Lowe’s has underway in its San Francisco area stores. The company launched its first generation autonomous customer service robot called OSHbot last year and then introduced a second generation model named LoweBot. The device roams store aisles, engaging customers and answering questions. “When we launched OSHbot, our goal was to assist our employees — and help free them up to work with more customers,” Kyle Nel, the retailer’s Vice President of Disruptive Innovation and Executive Director of Lowe’s Innovation Labs, said when LoweBot was launched. “Just like smartphones are designed to augment, not replace, people, we believe robots can play a similar role. When we talked to the folks at the Orchard store who worked with OSHbot, we heard just that — stories about how the robot helped them spend more time with customers.” Rather than being displaced by robots, the opportu-
Autonomous associates are a reality at select Lowe’s locations in the San Francisco area, but the robotic initiatives are not meant to displace workers, according to the company.
nity to work alongside robots is now positioned by some retailers as a benefit. Amazon employs that recruitment strategy when it announces locations for new fulfillment centers — something it has done about two dozen times this year. At a new 855,000-square-foot fulfillment center in Staten Island, N.Y., the company said this: “The facility is Amazon’s first fulfillment center in the state and will create more than 2,250 new, full-time jobs with opportunities for employees to engage with advanced robotics. Amazon employees at the Staten Island fulfillment center will work alongside robotics to pick, pack and ship customer items such as household essentials, books and toys.” The company used similar language in August when it announced plans for a fulfillment center in North Randall, Ohio, it said would create 2,000 full time jobs with benefits, “and opportunities to engage with Amazon Robotics in a highly technological workplace.” Amazon was an early adopter of robotics and it SEPTEMBER/OCTOBER 2017 Retail Leader.com
> HUMAN CAPITAL
continues to look for new advancements by hosting a robotics challenge. This year, the four-day contest was held in conjuction with RoboCup, a major technology event and robot competition in Nagoya, Japan. Amazon awarded $270,000 in prize money to competitors whose robots performed supply chain tasks with winners determined based on how many items their robots could pick and stow in a fixed amount of time. “The versatility of recognition capabilities in an unstructured environment and the dexterity of grasping mechanisms was truly impressive,” said Joey Durham, Chairperson for competition and Manager of Research and Advance Development for Amazon Robotics. The supply chain has long been a place of automation with advanced material handling systems eliminating the need for armies of workers moving boxes and palletized goods. The advent of e-commerce created new supply chain challenges that were met by robotic solutions. Amazon recognized the shift early and moved to acquire robotic systems manufacturer Kiva Systems in 2012. The company was renamed Amazon Robotics in 2015 and today the company has more than 100,000 of the robotic drive units zipping around 25 fulfillment centers worldwide to bring bins of goods to workers. While Amazon is viewed as the most advanced, other solutions exist to make workers more efficient. Former Kiva executives Jerome Dubois and Rylan Hamilton launched a company called 6 River Systems that manufactures a self driving cart named Chuck that leads warehouse workers to bin locations to pick items for new orders or to restock returned items. Fetch Robotics is another company with a robot designed to aid, rather than replace, warehouse workers performing e-commerce fulfillment tasks. “We don’t want to replace people. We just want to
Robot manufacturer Knightscope contends its digital security officers provide services similar to their human counterparts at one third the cost.
Retail Leader.com SEPTEMBER/OCTOBER 2017
make them more efficient because our studies show that 70% of time is spent transporting after picking,” said Norm Williams, director of sales with Fetch Robotics based in San Jose, Calif. Conversely, one company whose value proposition is focused squarely on replacing people is Knightscope. The company, founded in 2013, manufactures autonomous data machines used to patrol inside or outside a store or mall. The company is looking to tap a global security market it values at $300 billion with two models; the K3 stands four feet tall and weighs 340 pounds and the K5 is five feet tall and weighs 398 pounds. A four-wheel model called the K7 suitable for uneven outdoor surfaces is also under development. The company has 44 machines under contract with 32 clients as of mid-September but plans expects to have an installed base of 100 units by year end. The value proposition for a retailer — mall developer Westfield is a client — is the hourly operational rate of $7 an hour versus $25 for a human security guard, according to the company. “Knightscope continues to build the foundation for delivering on our vision of making the United States of America the safest country in the world, changing everything for everyone,” Knightscope’s Chairman and CEO, William Santana, said ahead of the ASIS International trade show for the security industry. The company used the event to unveil its “security team of the future,” a collection of four machines that employ lasers, ultrasonic sensors, inertial measurement unit (IMU), wheel encoders and collect massive amounts of data. Each unit can generate one to two terabytes of data per week and over 90 terabytes of data per year, which is accessible for review and analysis. The Knightscope robots perform a serious function and their stubby torpedo shape is a less than menacing form factor. The same can’t be said of some of the advanced robots coming from Google-owned Boston Dynamics. Its sophisticated robots are capable of walking on uneven ground, running up and down stairs and effortlessly hoisting 100 pound packages of the floor, which could come in handy for retailers looking to minimize workers comp claims. However, the company’s robots, with names like Atlas, Wildcat and Big Dog resemble contraptions from science fiction in which plot lines always seen put humans in jeopardy. Conjuring negative images of robots is easy to do because it taps into a range of human fears, stereotypes and uncertainty about the future. Consider the title of Martin Ford’s 2015 book, “Rise of the robots, technology and the threat of a jobless future.” In it he imagines a world without work and a range of generally negative consequences. Notable visionaries, from Bill Gates, Stephen Hawking and Elon Musk, take things a step further with warnings about artificial intelligence, especially when applied to autonomous weapons systems capable of identifying and eliminating targets. Applied
Fetch Robotics CEO Melonee Wise with her company’s supply chain robots named Fetch and Freight.
to the retail industry, systems capable of identifying and performing tasks are viewed with less concern because of anticipated productivity improvements. The automation of activities can enable businesses to improve performance by reducing errors and improving quality and speed, and in some cases achieving outcomes that go beyond human capabilities, according to a report from McKinsey Global Institute titled, “A future that works: Automation, employment, and productivity.” The firm argues that every occupation has the potential for partial automation. “We estimate that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies. That amounts to almost $15 trillion in wages,” according to McKinsey. “The activities most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing. In the United States, these activities make up 51 percent of activities in the economy, accounting for almost $2.7 trillion in wages. They are most prevalent in manufacturing, accommodation and food service, and retail trade.” If robots are about to eliminate millions of jobs, humans don’t seem concerned. Only 14% of U.S. employees fear losing their job to automation and one third of workers believe automation will make their jobs better, according to a survey from the U.S. division of Randstad, a global human resources service provider. The findings released in the summer of 2017 are part of the Randstad Employer Brand Research survey of 5,300 U.S. residents. “It is evident from our research that not only are workers not afraid of losing their jobs to automation, they are more than willing to retrain to leverage the efficiencies and benefits of artificial intelligence and robotics in the workplace,” said Linda Galipeau, CEO Randstad North America. “These sentiments should be welcome news for
companies as they seek greater adoption of automation to drive productivity and innovation. As we have known for quite some time, the success of organizations in the future will depend greatly on their ability to strike a balance between valuable human insight and interaction with technology.” Randstadt also found that U.S. companies are enthusiastic about the potential benefits of automation and AI on their business, with 31 percent of employer respondents indicating increased usage of automation and robotics in the past 12 months. A clear majority (84%) of U.S. respondents say they believe AI and robotics will have a positive impact on the workplace in the next three to five years, according to Randstadt. “As business leaders invest in digitization, automation, AI and other emerging technologies in the workplace, they must continue to evolve their workforce alongside these advancements,” Galipeau said. “While the productivity and efficiency benefits of automation are unequivocal, the need for skilled humans to operate, utilize and advance technologies is equally unmistakable.” Just asked orchestra conductor Andrea Colombini. He stood by in September as a dual arm robot from ABB, a Zurich-based technology and industrial automation company, conducted Italian tenor Andrea Bocelli and the Lucca Philharmonic Orchestra at the Teatro Verdi in Pisa, Italy. The robot, named YuMi, showed a very high level of fluidity of gesture, with an incredible softness of touch and expressive nuancing, according to Colombini. “This is an incredible step forward, given the rigidity of gestures by previous robots,” Colombini said. Of course, YuMi’s fluid gestures would not have been possible had Colombini not trained the unit to mimic his movements. RL
McKinsey researchers believe automation has the potential to impact every occupation, including orchestral conduction, something ABB’s robot YuMi demonstrated recently in Italy.
SEPTEMBER/OCTOBER 2017 Retail Leader.com
> TECHNOLOGY AND INNOVATION
THE NEXT TEN YEARS –
“Perpetual Moment of Truth” Wins Commerce
WHAT WE KNOW AND DON’T KNOW ABOUT A FUTURE WHERE SHOPPING IS INVISIBLE, SEAMLESS AND PERMEATES EVERY ASPECT OF LIFE. > By Bill Akins As a senior at California State University out in Silicon Valley 20 years ago, I remember blowing people’s minds in my valedictorian address with a nugget out of the leading business book at the time from Bill Gates, “The Road Ahead.” Quite progressive for the day, he predicted that the line between a desktop experience and “being online” would become invisible, allowing people to stay constantly connected in the midst of daily administrative grunt work. As a result, better tech would make us more human. His prediction would be quickly recognized, and 10 years later the iPhone took invisible connectivity to the next level. On its tenth anniversary, we look ahead to what its successor could be, and while predicting which singular billion-dollar plus disruptive device will dominate the next 10 years is not an exact science, we can say this about the future:
First, the days of putting brick and mortar shopping and digital shopping into separate silos will long be gone. It’s not e-commerce and in-store commerce. It’s “commerce.” Period. People do not “go” shopping” they are “always shopping.” Yes, the convergence of physical and digital (“Phygital” as some in the industry say tongue-in-cheek) is in its early stages, but it will be fully mature over the next decade. Shopper marketing is but one aspect of commerce, analytics/measurement, scripted content, frictionless payments, subscriptions, strategic market baskets, IoT, and AI will have all been mastered to enhance precision targeting and flawless conversion.
Retail Leader.com SEPTEMBER/OCTOBER 2017
Second, for those of us old enough to remember the standalone (pre-shopping mall) version of Sears and long-gone Service Merchandise, it is worth recalling that those retail outlets were 60 percent showroom and 40 percent catalog fulfillment centers. Flip the pie chart around over the ten years ahead of us and the surviving physical stores will be 40% showroom and 60% digital/ same-day operational/logistical powerhouses for all corners of the world. Warby Parker and Toys R Us are already doing this with “lean retail” pop-up stores where you cannot buy anything physically — you can experience products and then have them delivered quickly. Third, while we may not be able to pinpoint with any accuracy what the next iPhone will be, I can promise you that voice activation/search will play a large role in whatever emerges. While today’s world requires AI voice pattern recognition “training” for the Echo and Google Home devices to work with greater levels of precision and personalization, tomorrow’s devices will be more tightly integrated within homes and vehicles as concierges that act as digital butlers and integrators across the “platformization” of all technology. As a result, where CPGs (who will have certainly gone to supplemental direct-to-consumer approaches with flagship brands) and retailers alike will have woken up to the fact the in order to win at commerce, one has to win at the point of influence when a shopper is inspired. Better stated by my friends over at Kantar Retail, the Perpetual Moment of Truth wins all, and is a built off of the First through Third Moments of truth tackling conversion at shelf, product usage, and social media word of mouth acceleration. While Google coined Zero Moment of Truth to show how “searchandising” was the new paradigm to win retail back in 2011, the Perpetual Moment of Truth ultimately converts when a shopper is initially exposed to a commerce opportunity with absolutely no reliance on recall. Amazon Echo is only the
In the “phygital” future shopping isn’t a task to be completed, but rather a perpetual activity ingrained in life’s daily rhythm.
beginning when the Doritos I see on a Super Bowl ad can be at my doorstep within the hour uttering one simple phrase. Finally, building on all of this yields a bold prediction that coupons as we have known them for the past 100 years will drastically morph into an extremely personalized science — and I am not talking micromarketing or media targeting here. Consider what I call “Ellen’s Store.” Ellen is my wife’s older sister, and they have always been inseparable. My wife would blindly trust what Ellen bought for her babies (Ellen had my niece a few years before our oldest was born) tenfold over anything that a manufacturer or retailer would say or claim. Put a quantity of one next to every baby item Ellen bought, and my wife would have been 100% all-in. Not quite a registry list, imagine a day where Ellen had her own virtual storefront as a subdomain of primary retailers’ sites where those within her sphere of influence can purchase products directly, and Ellen receives a portion of the proceeds as store credit to continue the Circle of Life of retail over and over. The same for product reviews at the virtual or physical shelf. Murray may be the most trusted wine connoisseur friend in my social sphere, and if her Chilean Cabernet Sauvignon review triggers an immediate conversion from
me during the Perpetual Moment of Truth, she benefits (thus driving more engaging and real reviews all across the board). I think we will all see the question of “How do you beat Amazon” change to “How do you compete against Amazon (or avoid getting decimated)” over the next few years as history is being made by the minute on this unstoppable force. However, for those outside of the Bezos camp, success will still be attainable on converting at the point of inspiration. Time Magazine named a surprising choice for one of the most influential technologies of the Twentieth Century in its “Innovation” issue recently. Air Conditioning. The Southeast and Southwest would never have been settled and modernized without it. Supercomputers, server farms, and even “the cloud” as we know it would melt without it. The winning commerce technology over the next ten years — like air conditioning and Bill Gates’ Road Ahead prediction — will be invisible: seamless and permeating every single inch of your life. You won’t really pay attention to it when it is working correctly, but you will absolutely notice it when it doesn’t. RL
“The Perpetual Moment of Truth wins all, and is a built off of the First through Third Moments of truth tackling conversion at shelf, product usage, and social media word of mouth acceleration.”
Bill Akins is Chief Client Officer with digital innovation agency Rockfish, part of the WPP global family of companies. SEPTEMBER/OCTOBER 2017 Retail Leader.com
> TECHNOLOGY AND INNOVATION
CYBER Secret Weapon DIGITAL BAD ACTORS WILL BE OUT IN FORCE THIS HOLIDAY SEASON BUT RETAILERS ARE BETTER EQUIPPED THAN EVER TO DEFEND THEMSELVES. > By Mike Troy
Retailers and consumer goods companies faced with the prospect of unrelenting and increasingly sophisticated cyber threats have reason for hope. New advancements in detection and information sharing have improved prospects for mitigating the risks of cyber attacks. The tip of the spear in this effort is a three year old organization that has quickly risen to prominence in a retail industry where digital interactions with customers are growing exponentially. “We are working on the various barriers to information sharing,” said Suzie Squier, Executive Director of the Retail Cyber Intelligence Sharing Center (R-CISC). “On the technology side we are entering the next evolution of our platform that will allow easier functionality for members of all size organizations to share threat intelligence and create a more actionable picture out of that intelligence.” Retailers are normally very secretive, but when it comes to cyber threats the willingness to share is driven by an us against them mentality. That attitude surfaced in force around 2014 after a series of high profile cyber attacks bloodied several retailers. The industry awoke to the realization that combatting increasingly sophisticated digital bad actors would require the same type of collaboration that long existed among asset protection professionals tasked with protecting stores from organized shoplifting groups. Today, many retailers have created the role of chief information security officer, or CISCO, or at a minimum have rolled information security into the responsibility of other senior executives. R-CISC is targeting these senior executives and others in operational rolls to join in the sharing of cyber threat information. “We want to keep raising awareness of
Suzie Squier, executive director of the Retail Cyber Intelligence Sharing Center
the R-CISC because the more we share the better off the industry is,” Squier said. The key advancement on that front was made recently with the addition of TruSTAR Technology as a threat intelligence partner. TruSTAR becomes part of the RCISC’s Information Sharing and Analysis Center’s (ISAC) technology suite, a platform built from the ground up to break down barriers to intelligence exchange. The R-CISC now supports a more automated method of ingesting data shared by members to more quickly share threat insights with members. “Adding TruSTAR as a threat intelligence partner brings the R-CISC one step further in our strategic initiative to expand the capabilities of the Retail ISAC’s technology infrastructure,” Squier said. “The R-CISC is breaking down barriers to information sharing and increasing the usability of actionable intelligence available for our users, allowing them to more easily ingest, act and mitigate cyber threats.” Squier joined R-CISC earlier this year to lead all aspects of the organization, including ISAC, but she’s no stranger to the group. During her 14 years with the Retail Industry Leaders Association (RILA) and while in her role as Executive Vice President of Member Services was instrumental in the RILA led effort to establish R-CISC. Those connections to the industry are seen as crucial because there is a high degree of trust involved to foster a culture of sharing among digital executives. To further the R-CISC trust agenda the organization is slated to hold it second annual Retail Cyber Intelligence Summit Oct 3-4 in Chicago. The gathering will be fairly intimate by design with several hundred retail, consumer goods and solution provider executives in attendance “One thing we realized early on is that relationships are key to establishing the level of trust that is crucial to build information sharing,” Squier said. The event is also an opportunity to hear from keynote speakers including Target CISO Rich Agostino on the topic of “Stepping in Leadership: Staying Ahead of Today’s Threats and the Evolving CISO Role. Another noteworthy participant is Procter & Gamble CISO Kostas Georgakopulos leading a session on the next evolution of information security. Another panel on Women in Cybersecurity involves Best Buy CISO Deborah Dixon and VF Corp CISO Roseann Larson. RL
Retail Leader.com SEPTEMBER/OCTOBER 2017
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10/12/17 12:59 PM
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> SUPPLY CHAIN
CARGO IS KING
RETAIL SUPPLY CHAINS IN THE CENTRAL U.S. WILL BE RESHAPED BY A NEW INTERMODAL FACILITY DOWNRIVER FROM NEW ORLEANS IF THE GRAND VISION FOR THE PROJECT CAN BE REALIZED. > By Mike Troy
When Maynard “Sandy” Sanders took the job as executive director of Plaquemines Port Harbor and Terminal District four years ago, he figured on staying two years. The former U.S. Army General had previously served as Deputy Port Director for the Port of Corpus Christi and figured the executive director role at Plaquemines would lead to a similar role at a larger port. Things didn’t work out that way. “My vision has morphed from what I started off doing to what I’m doing now,” Sanders said. “What I’m doing now is building a gulf gateway and transportation hub to the heartland of America.” To understand Sanders’ vision requires understanding Plaquemines’ unique location as Louisiana’s largest and southernmost parish. About 70 percent of the parish is water and it includes the approximately 100 mile stretch of the Mississippi river that extends south from New Orleans to the Gulf of Mexico. The Plaquemines Port is between mile 50 and 55 on the west bank of the river and currently is used primarily for petrochemcials and bulk goods. Earlier this year, Sanders and a group called American Patriot Holdings revealed an ambitious plan to turn Plaquemines unique location and available land into an intermodal facility able to handle containerized goods including refrigerated and frozen cargo. “We’re building a new, modern technology port from the ground up where berthing depths exceed 60 feet and with the capability to accommodate the larger Post-Panamax vessels coming through the widened and deepened
Panama Canal,” Sanders said. “Cargo owners and ocean carriers alike should look at the planned port as a solution to their logistic problems and the high intermodal costs that plague them today. Cargo flows through the most efficient economical route and our plans are to provide shorter dwell times, Maynard “Sandy” Sanders, executive lowest cost, with fast director of Plaquemines Port Harbor and Terminal District and reliable routes.” The new port, comprised of 4,200 acres, will include a recently announced $8.5 billion Liquefied Natural Gas re-liquefaction facility, a break bulk terminal and a 1,000 acre container terminal capable of servicing the largest ocean carriers. The linchpin to the port’s viability is a new type of container vessel capable of plying the Mississippi river faster and with larger cargoes of containerized goods than the current system of barges lashed together and pushed by tugboats. “The new vessel is going to revolutionize the onward movement of cargo via waterborne means and strengthens the inland waterway system,” Sanders said. The vessel features a patented exoskeleton hull design that maximizes the loading of shipping containers. A patented bow design developed by American Patriot Holdings and naval architect Naviform Consulting & Research enables the vessel to travel at speeds up to 13 miles per hour while producing minimal wake. That means a round trip from The exoskeleton design of a new kind of container ship could transform frozen and refrigerated supply chains throughout the central U.S.
Retail Leader.com SEPTEMBER/OCTOBER 2017
Plaquemines to Memphis will take seven days and roundtrip to St. Louis will take 11 days. Once in those inland ports good can be transported to other distribution methods or travel further upriver. The vessels run on liquefied natural gas and will have a high level of electrical capacity for frozen and refrigerate cargos. A unique propulsion system means they are capable of docking themselves as opposed to relying on tugboats to nudge them into berths. The speed advantage is the thing that stands out because a barge and tugboat system makes four or five miles per hour at best, according to Sal Litrico, CEO of American Patriot Container Transport (APCT), a wholly owned subsidiary of American Patriot Holdings (APH). In addition to speed, the exoskeleton vessel with its containerized cargo hauling design brings the efficiency of maritime loading and unloading practices to inland waterways. What happens next with the Plaquemines Port’s development will depend on cargo owners such as retailers and CPG companies. They will need to have confidence that the port vision is achievable and they will realize greater distribution efficiencies into the nation’s heartland. “Most logisticians will gladly trade longer transit times for lower delivered cost if that transportation is reliable and dependable,” Sanders said. “But we can’t get ahead of our pocket book. We have to have commitments for cargo because cargo is king. You can’t do anything if you don’t have cargo commitments.” Once commitments are obtained, construction of vessels can also begin. In September, model testing of the vessel is scheduled to take place in Germany that will validate claims about speed, limited wake and shallow drafting. If all goes well, as Litrico expects it will, then plans call for an initial fleet of four ships with the first vessel available in about two years and three others coming online about four months apart. Longer term plans call for a fleet size of between 9 and 12 vessels in three sizes. The workhorse of the fleet is expected to be the mid-range size that measures 772 feet long and 100 feet wide with a capacity of 2,392 TEUs, or 20 foot equivalent units, a measure of cargo capacity used to describe a common container. By comparison, a typical barge can accommodate 40 TEUs but when connected to other barges it forms a barge train with greater TEU capacity. Sanders also envisions using a nearby naval air station for commercial purposes, which will help the base increase its overall utilization rate and avoid Base Realignment and Closure (BRAC), or what Sanders said those in the military refer to as, “getting BRACed.” The base is Louisiana’s third largest employer and Sander’s plan calls for creating an industrial park near the end of a runway that leads to highway 23 and points north. Nearby rail lines also need to be extended for the port to deliver on its intermodal aspirations.
The newly designed exoskeleton vessel, left, promises higher capacity and minimal wake even at speeds nearly triple that of conventional barges.
It is a grand vision that faces plenty of obstacles, but the massive project has several things going for it. The most obvious is the business case for shippers who stand to gain a more efficient means of getting goods into the nation’s heartland reliably and cheaply. It also helps that the federal government is actively encouraging industry to increase usage of inland waterways for the distribution of goods. Passage of the Energy Independence and Security Act of 2007 that created the Marine Highway Program has as one of its goals the reduction of truck traffic on highways. The other thing the Plaquemines Port has going for it is that Sanders is leading the effort. The U.S. military is known for producing logisticians and Sanders spent 32 years in the Army helping move personnel and equipment around the world. The Mobile, Ala. native graduated from the United States Military Academy at West Point and has a masters degree in strategy from the United States Army War College. As a Brigadier General, he served as the Deputy Commander for mobilization for the Military Surface Deployment and Distribution Command in Fort Eustis, Virginia and as the Director of the Central Command Deployment Distribution Operations Center in Kuwait. As a member of the Senior Executive Services he served as the Director of Defense Energy Supply Center at Fort Belvoir Virginia. His last military assignment, he served as the Deputy G4 for U.S. Army Reserve Component Integration, Army Headquarters in the Pentagon as a Major General. It is the type of leadership background and skill set that promises to serve the Plaquemines Port well as it looks to establish an intermodal facility that will have logistics leaders rethinking their supply chains. “We are starting this from nothing. All I have right now is potential,” Sanders said. “However, in 10 years, this thing is going to completely revolutionize the Gulf Coast.” RL SEPTEMBER/OCTOBER 2017 Retail Leader.com
MEHTA EXECUTIVE INSIGHTS NISHAT PRESIDENT, MEDIA CENTER OF EXCELLENCE
A glimpse at the minds and personalities of IRI’s thought leaders. Chicago-based IRI is a technology-driven big data and analytics company at the forefront of the consumer buying revolution. IRI delivers the world’s largest set of market, consumer purchase and integrated media data to CPG, retail and OTC healthcare companies around the globe. As a result, its clientele reaps the benefits – growing their businesses and in turn further growing a giant and alwaysevolving industry.
Here we have insights from Nishat Mehta, IRI’s president of the Media Center of Excellence. He shares the incredible impact personalization can have on strategic planning and execution, how IRI can help take personalization to new heights, the benefits of industry partnerships, and he tells us a little about himself.
Q. How much of an impact can truly personalized programs have in terms of ROI? A. We have realized an improvement in overall return on ad spend (ROAS) of up to 70 percent driven by personalized marketing and promotion programs during the campaign term. More importantly, delivering truly relevant communications to consumers builds loyalty resulting in returns well beyond the campaign period. Q. How does the IRI Personalization Suite build upon IRI’s already strong offering? A. The Personalization Suite leverages IRI’s unparalleled frequent shopper purchase (from more than 250 million loyalty cards), mobile location, credit card (for non-CPG) and crossmedia exposure data assets, along with our retail and media partner ecosystem. It incorporates the IRI Liquid Data® technology, which offers an always-on platform for delivering insights and measurement results as quickly as five weeks after the campaign begins enabling in-flight optimization. Finally, IRI’s advanced science on top of its point-of-sale and panel data enable accurate modeling of results to all-outlet and granular insights about individual components of the campaign. This combination gives marketers the most precise end-to-end platform to better direct, optimize and measure the sales impact on every dollar spent. Q. Why is it revolutionary? A. Quite simply, the suite brings unmatched data, proprietary algorithms and technology to the science of consumer activation and sales lift measurement. It provides seamless, integrated systems empowering users to achieve a new level of precision. Q. How will retailers and manufacturers together experience the benefit of the insights? A. When consumers win, both retailers and manufacturers win. Today, consumers are exposed to thousands of marketing messages every day, and they are developing blindness, at best, and anger, at worst, to irrelevant advertising. The Personalization Suite provides advertisers an unprecedented ability to help deliver the right message to consumers, measure and improve advertising effectiveness with greater accuracy, and optimize in-flight and future campaigns with greater precision. This enhances shopper engagement and loyalty, and meaningfully increases sales and market share. Q. How is IRI building the data on this platform? A. IRI has developed a solution to help our clients understand both what consumers do and why they do it. To fuel that goal, IRI has combined a powerful combination of assets and capabilities of applications fueled by the broadest and deepest multichannel retailer data assets at scale, including anonymized data from more than 250 million national shopper loyalty cards from multiple leading retailers, such as BevMo!, BJ’s, The Kroger Co., Rite Aid, Southeastern Grocers, Walgreens Boots Alliance and others. We combine this data with other proprietary behavioral signals, including POS, consumer panel, credit card, mobile location and causal data assets and real-time analytics, delivered through our industry-leading IRI Liquid Data® technology platform. Q. What is your most frequented website? A. ESPN.com. (I’m a Lakers fan and embarrassed to be this interested in the draft and free agency.) Q. What reading material is on your nightstand? A. Guns, Germs and Steel; The Big Short; and the Harry Potter series.
the heartbeat of the marketplace
Why Have Only a Slice? Hone in on high-value customers to capture a larger piece of the existing pie.
inding growth in a low-growth retail market is challenging. As the competition in today’s omnichannel, retail world continues to grow, finding growth is frustrating, too. And, with online retailers winning with limitless choice, finding growth can be infuriating. But it doesn’t have to be doom and gloom despite stagnant growth — retail and CPG markets reported overall growth of less than one percent in the past year, down from two percent the year prior. The future is still bright for retailers who successfully serve the market’s high-value customers. Instead of going after the whole pie, just get a larger piece!
FeRnando SaLido, Executive, Consumer & Shopper Marketing, IRI
household in incremental growth opportunities. To capture this growth, it’s imperative to win more spending, in particular from highvalue shoppers. The top-spending households in a category spend significantly more at a retailer than the average household. The top-spending 20 percent of customers account for 55 to 65 percent of a retailer’s sales in nearly every category. Research shows that the highest category spenders in the market spend more, on average, than even a retailer’s best customers. In fact, as much as 20 percent of a market’s highest-spend customers are not even among the retailer’s top customers.
three-prOnged apprOach Finding the highest-Value OppOrtunity
The average household spends roughly $3,400 per year on packaged goods, according to the IRI Consumer Network™. The average grocery banner only captures 15 to 20 percent of that spending, missing out on an estimated $2,800 per
It is critical to understand market-wide spending patterns for high-value shoppers. CPG spending per household $8,000 7,000
Spending at rest of market
Retailers must focus on increasing share of wallet and driving higher customer lifetime value.
Retailers must acquire the market’s highest-value customers who do not currently shop their banner.
4,000 3,000 2,000 1,000 Average Household
Retailer’s Best Customers
Source: IRI Consumer Network™
To maximize growth opportunities, this three-pronged approach delivers results, and should be at the crux of shopper-centric strategic planning:
Retailers must gain more share from existing customers in general, and specifically from existing customers who are also the market’s highest-value customers.
Spending at retailer
Winning in today’s CPG marketplace requires strategic planning to build existing customer sales, while also reaching out beyond the store’s four walls to capture incremental growth opportunities. Easier said than done, but there are proven approaches to gain share of wallet and to increase customer loyalty. There are new insights and tools to drive successful merchandising and marketing approaches at retail.
Retail Leader.com September/OctOber 2017
Market’s Best Customers
To activate on this approach, retailers need to clearly identify their best customers and the market’s most valuable customers, as they may not be the same! The most valuable customers in the market may not be among a retailer’s best. Because the highest spenders in the market spend more than a best customer, this translates into lost revenue opportunity.
Data & Insight Provided By
Retailers’ customers by percentage 100%
Your top customers who are top market customers
Top market customers who aren’t your top customers
IRI provides a complete market perspective to enable share growth from high-value customers in three steps: Identify the highest-value customers in a market and estimate a retailer’s share of wallet among those customers. Understand the gaps and growth opportunities with these highest-value customers. Activate the highest-value customers through a structured, insights-driven approach to maximizing return on investment.
Though historically retailers have focused on their own best customers to bring growth, today’s challenging retail environment requires a shift in approach. A retailer’s own best customers are not enough on their own. In today’s omnichannel marketplace, winning a larger — and sweeter! — slice of the existing pie requires a 360-degree view of the shopper. By winning with the market’s high-value customers, retailers will bring in dollars and help offset the industry’s anemic sales growth. RL
All your other customers
0 Source: IRI National Consumer Panel™
Retailers can identify brands with untapped potential among high-value customers. Illustrative example: Top 20 high-value customer per household competitive spend gap $30
Vendor (Priority 1 and 2)
Eight O’clock Coffee Company
Keurig Green Mountain Kraft Heinz Co.
Massimo Zanetti Beverage USA 15
Seattle’s Best Coffee LLC
Keurig 2.0 K Carafe Eight O’Clock
Starbucks Coffee Co. The Folger Coffee Co. The JM Smucker Co.
T-20 HVC per-HH Spend Gap (Your Spend per T-20 $0 Buyer Less Competitor Spend per T-20 Buyer)
Folgers Gourmet Selection
T-20 HVC customers spend ~$15 more per HH on Starbucks ground coffee at a competitor than at your store.
Tully’s Coffee ($25) 0
T-20 HVC Total Market Penetration Source: IRI Consumer Network™
September/OctOber 2017 Retail Leader.com
A Letter from the President and CEO
Shoppers Expect Retailers to Know the Answer to These Questions
Leslie G. Sarasin
usually think I have a pretty good grasp on public opinion and can reliably predict popular perspectives across diverse topics. I have found I can usually trust my instincts and intuitions when it comes to knowing what most people think, and when I question my judgment in this regard I tend to rely on my Kentucky roots and the connections I still have there to gauge what conventional thinking outside the Washington Beltway might be. Occasionally, though, I encounter a data point in a study that catches me a bit off-guard. I recently
... manufacturers are mainly on the hook for product transparency, while the biggest opportunities for retailers to fulfill shopper hopes and expectations come in filling in the information gaps in the more nebulous areas of sourcing, certifications, and processing information.
Continued on page 47
By the Numbers Information gathered from questions revealed that when it comes to what is WITHIN products, consumers want retailers and manufacturers to be open and honest about the ingredients and processes used to ensure food safety as well as the source of the ingredients used in the products.
39% Expect frank communication from the retailer
Hold the retailer responsible
Hold the manufacturer to a higher account
Want retailer honesty
Retail Leader.com September/OctOber 2017
57% Expect the manufacturer to be forthright
Source: FMIâ€™s U.S. Grocery Shopper Trends 2017
ran face-front into one of those reality-check moments when reviewing this yearâ€™s FMI research U.S. Grocery Shopper Trends. The 2017 edition of Trends sought to bring more light to the oft-referenced subject of transparency; seeking to define it, identify precisely the information that most interests consumers, and clarify lines of whom the shopper holds accountable for particular issues. It was in the data detailing where consumers tend to ascribe responsibility to the food manufacturer and where they hold
45% Believe the manufacturer should provide open communication
Marking Pivotal Anniversaries in Food Safety By Hilary Thesmar, PhD, RD, CFS, Chief Food & Product Safety Officer and Senior Vice President, Food Safety Programs, FMI
first anniversary is often referred to as the paper anniversary; the material symbolizes a newly cemented relationship or even the delicate nature of those first 365 days in a binding partnership. In the food safety community, this September marks the first anniversary of the first compliance date for several of the most visible regulations for the Food Safety Modernization Act, or FSMA. We’re celebrating a paper anniversary of the compliance date of two of seven major rules that significantly impact the way our supply chain does business: the FSMA Preventive Controls Rule for Human and Animal Foods rules bolster the long-term investment in FSMA among our companies. The rules cover those who manufacture, process, pack or hold food, and each covered facility is required to prepare and implement a written food safety plan and current good manufacturing practices. As with any good relationship, responsibilities and investments should be shared, which is why we have been encouraging our food retailers and wholesalers to ask the same questions they considered internally of their supplier partners. In all, we’re working to shift to a prevention-based model in order for the industry to effectively create future checks and balances. FMI continues to stress an enterprise-wide culture of food safety to not only comply with the FSMA rules, but also impart a greater sense of responsibility for food safety all along the supply chain. Indeed, smart partnerships help us better navigate the complexities of FSMA rules. Proper recordkeeping is a key component of all seven rules, and our relationship with ReposiTrak® has helped FMI members monitor and follow-up on corrective actions. We’re approaching the four-year mark on our partnership with ReposiTrak®, which affords grocery warehouses, supermarkets, packaged goods manufacturers, food processing facilities, growers and logistics partners to manage compliance documents and to track and trace products throughout the global food chain. This demand for transparency is increasingly critical to FSMA compliance, and consumers want context beyond the package, per the FMI U.S. Grocery Shopper Trends 2017.
FMI has consistently maintained efforts to support greater clarity and communication in the supply chain. This commitment is most notable in our work to encourage the U.S. Food and Drug Administration to consider the Global Food Safety Initiative (GFSI) as it prioritizes and implements FSMA programs. GFSI programs like ours, the Safe Quality Food Institute we acquired in 2003, reduce risk in the supply chain by receiving, storing, maintaining, sharing, and providing compliance reporting and proactive expiration alerting of audit, inspection and regulatory documentation required between supplier and food retailer. Nothing is more important to our food retailer members than protecting their shoppers, and while FSMA ensures we are responsible for the food while it’s in our control, we need to support consumers once they take the products home to enjoy. Thus, over the last 20 years, we’ve supported the Partnership for Food Safety Education in its mission to empower the shopper and prevent food poisoning. The biggest takeaway for all of us in the food safety community is that relationships are built on trust. Consumers want to experience a closer connection to their food, and we take pride in our Trends report that finds 95 percent of shoppers trust their grocery store to ensure that that food they purchase is safe. Still, like paper, trust is fallible. FMI September/OctOber 2017 Retail Leader.com
Preserving Shopper Trust through Health and Wellness By Susan Borra, RD, Chief Wellness Officer, FMI & Executive Director, FMI Foundation
recent report prepared by the Hartman Group for the Food Marketing Institute (FMI) Foundation found that 41 percent of all meals eaten by American adults are eaten alone. That number is increasing and outpacing the growth of single-person households. While dinnertime reigns as the most commonly enjoyed “family meal” occasion, breakfast and lunch are an emerging battleground for shared mealtime market share. A key takeaway from the same report also cited that 88 percent of people surveyed believe that food eaten at home is healthier because they have more control over ingredients and portions when they prepare their own food. With those statistics in mind, coupled with the data about the health and societal benefits of families eating together, the FMI Foundation reignites its National Family Meals Month™ campaign, which implores the food retailing industry to encourage families to eat one more meal together each week this September. The Foundation is well positioned to fulfill its nutrition and health mission aligned with the launch of this campaign. The most recent FMI U.S. Grocery Shopper Trends 46
Retail Leader.com September/OctOber 2017
study found that nearly half of Americans see their “primary food store” as a significant ally in their attempts to achieve their health and wellness goals. While their store ranks behind trusted resources such as their own family or doctor, the food retailer is far ahead of health insurance companies or restaurants. Related, as revealed in the 2016 Food Retailing Industry Speaks analysis, retailers see opportunities to grow their customer loyalty with 76 percent saying they are competing on strategies related to solutions for family meals and 74 percent saying they are implementing consumer wellness and family health programs. In 2015, the first year of the campaign, nearly 40 percent of food retailers said they participated in the National Family Meals Month and at least 70 percent have stated they are making plans to do so this year1. The Foundation prepared its Best Practices and Excellence in National Family Meals Month™ Programming report with specific turnkey suggestions that any company can undertake to participate, but the initiative comes down to eight simple imperatives: 1. Take advantage of the omnichannel meal solutions marketing strategies you are already implementing to promote the program. 2. Build on what your company did for National Family Meals Month™ last year and use the momentum and feedback to do even more this year. 3. Engage consumers through personal messaging. A study prepared for FMI by Nielsen found that 95 percent of people who knew about the campaign last year learned of it via social media or e-mail.
4. Understand that, because each family is different, they will interpret the campaign differently and it is incumbent on you to suggest a variety of ways in which they can participate. 5. At the same time, take note of the cultural makeup of the communities you serve and prepare collateral materials in the appropriate languages. The Nielsen study also found that multicultural consumers were twice as likely to participate in the campaign. 6. Collaborate with other institutions in the community (i.e., suppliers, the media, health care facilities) to promote the idea that there are health and wellness benefits to families sharing one more meal each week. 7. Use the same metrics you use in other parts of your business (including sales growth) to measure the impact your program is having. 8. Finally, and perhaps most importantly, provide and display fresh, healthy choices to your shoppers, including prepared meals. The health and societal benefits of families sharing one more meal each week are exponential and by participating in National Family Meals Month retailers can achieve the goal of being a trusted partner in health and wellness for the communities they serve. The campaign is only in its third year, so we’re merely starting a journey that we expect will create stronger trust between food retailers and their shoppers in the future. FMI To learn more visit: www.fmifamilymeals.com 1 2017 Report on Retailer Contributions to Health and Wellness, Food Marketing Institute
Surprise! Continued from page 44
the retailer accountable that I was surprised. The information we gathered from the questions designed to probe these areas revealed that when it comes to what is WITHIN products, consumers want retailers and manufacturers to be open and honest about the ingredients and processes used to ensure food safety as well as the source of the ingredients used in the products. In all these areas, every age group of shopper significantly holds the manufacturer more accountable than the retailer. For ingredients used, 50 percent hold the retailer responsible, while 63 percent hold the manufacturer to higher account; regarding manufacturing processes to ensure food safety, 39 percent expect frank communication from their retailer, while 57 percent expect the manufacturer to be forthright; and regarding ingredient sourcing, 26 percent want retailer honesty, while 45 percent believe the manufacturer should provide open communication. Also, our research revealed that when it comes to on-package labels bearing information about product content, a strong majority (70 to 80 percent) find the labels convey sufficient information. When we turn the corner to concerns that are BEYOND product content, including issues such as labor fairness, humane treatment of animals, sourcing choices and giving back to the community, we hear a different story from consumers, and this is where I was most surprised. In these areas, the scores between manufacturers and retailers are much closer and in fact, in the three areas of how employees are treated, product/ingredient supplier choices and giving back to the community, shoppers actually hold food retailers more responsible than manufacturers. When it comes to environmental impact, the retailer and manufacturer scores were a virtual tie, indicating consumers hold them equally accountable, except in the category of the mature generation of shoppers, who consider ecological concerns significantly more of a manufacturer responsibility. The one “beyond the product” concern that shoppers believe to be much more of a manufacturer concern than a retailer responsibility is the area of humane treatment of animals. In this regard, 32 percent of consumers want openness from their retailer, while 41 percent desire honest communication from the manufacturer. I found this split a bit odd in that animal activists tend to target retailers more frequently than they do manufacturers in their activities. In short, manufacturers are mainly on the hook for product transparency, while the biggest opportunities for retailers to fulfill shopper hopes and expectations come in filling in the information gaps in the more nebulous areas of sourcing, certifications, and processing information. These are the areas where shoppers find the label information insufficient. The challenging aspect of this revelation is that it means there must be much more open and honest communication between retailer and manufacturer if the retailer is to be able to convey this more-difficult-to-access information accurately to the consumer. And lest any of us think this might not matter much, consider that Millennials — those portals to the future — are the group most apt to judge a company by its business ethics and sustainability practices. Transparency is the currency of trust in a digital age. It provides the shortcuts shoppers seek to help them navigate an increasingly complex food system. In order for all of us to succeed in giving the shopper the information he or she wants, transparency must also characterize the exchanges between food manufacturers and food retailers. FMI
September/OctOber 2017 Retail Leader.com
The RL ReseaRch RepoRT Who finds shopping to be fun?
Shopping…where’s the fun in that?
(Percent of survey respondents) Male
60 and 0ver
If you could only shop one way, would you choose in-store or online? Online In-store
What makes shopping not fun? 35% 30
The focus on speed and convenience suggests consumers will favor any innovation that saves them time and effort in the store or online and is fueled by the view that the activity of shopping has lost its appeal. However, the latest research from Market Track’s Shopper Insight Series indicates shopping is an activity enjoyed by an overwhelming majority of the 1,000 U.S. shoppers surveyed. Shopping Is Fun More than 80% of those surveyed believe shopping is fun, with women (86%) favoring the activity more than men (75%). Those who enjoy shopping most skew younger and online shoppers have slightly more fun, with 87% indicating they enjoy shopping online, compared to 80% in store.
Fun Factor The abundance of retail innovations in recent years have been designed to make shopping more convenient, faster and less expensive. retailers, brands and disruptive entrepreneurs have probed every aspect of the path to purchase to eliminate friction, improve satisfaction and make the store experience enjoyable.
regardless of gender, age, or channel, there is opportunity for retailers and brands to make shopping more fun by employing various tactics. For example, though both men and women enjoy shopping, if forced to choose, they might pick different channels. More than half of women would rather shop in-store if they could only shop in one channel, compared to only 43% of men. Nearly 60% of men would rather shop online. Convenience was cited by 71% of men as the reason for their online preference, followed by assortment (59%) and perception of better prices (53%). women’s online preferences are based on the tangible experience of being able to see and touch merchandise (86% vs. 72% for men) and the immediacy of fulfillment (62%).
Long Prefer to check out shop lines online
Items hard to find
Lack of customer service
Out of stock items
Retail Leader.com September/OctOber 2017
Incorrect Promoted Lack prices products of not parking available
Bah Humbug! Among those who do not like shopping in stores, 62% said they have never liked shopping and cited crowds and long lines as the reasons why. The in-store experience has not kept pace with the innovations in online shopping and elevated expectations around service, price and selection. An overwhelming majority of shoppers still enjoy shopping in stores, but with crowds and lines sure to be present during the holidays shoppers’ perception of whether shopping is fun will face familiar pressures. RL
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> WHAT’S NEXT...
RETAILERS’ CAGE-FREE COMMITMENTS REPRESENT THE ULTIMATE CHICKEN OR EGG SCENARIO.
At last count there were 231 retailers, restaurants and food manufacturers who had made commitments to sell only cage-free eggs, with most selecting 2025 as a target date. These organizations’ commitment coupled with the egg industry’s current cage free production capacity limitations and consumers’ desire for choice have created a challenging situation. Currently, consumers face a myriad of choices at the typical retail egg case. What size to select? Brown or white? Omega-3 enriched? Organic? Shell or liquid? And of course, one of the most complex questions — how were the hens that produced the eggs housed? Egg farmers in the United States and their retail customers are faced with similar questions as they navigate the complicated issue of long-term commitments to cage-free egg production. Often, the questions outnumber the answers. While the egg case is the “finish line” of egg production, there are so many considerations along the egg’s journey from farm to store. Together with their customers, U.S. egg farmers must individually identify the most feasible way to manage the pretransition periods leading up to the 2025 target date because the industry still needs another 200 million hens that are cagefree to satisfy industry commitments for that date. Cage-free production is more expensive than traditional production, up to three times more in most cases so there are huge cost considerations for producers. Some estimates project the entire cage-free transition could cost egg farmers more than $10 billion. Will consumers be willing to pay more for a product that is more expensive to produce? How could government programs like WIC or SNAP, which have significant retail implications, be affected? Egg farmers and retailers are quickly learning that the transition to cage-free, with all its complexities, must be made within the context of all these questions. With the challenges and uncertainties of the changing egg market there are many factors to consider, such as egg safety, affordability, demand and environmental impacts. Each of these impacts must be carefully evaluated by the individual participants — there is no “silver bullet” that can make this transition swift or easy. Satisfying customers in a fluid and highly-competitive environment is something UEP’s farmer members do every day, but never before on this scale or with such precision. For example, egg farmers must be as customer-focused as always, while also assuring a stable business environment and a ready supply of affordable eggs, even as they plan their own strategies for one of the
Retail Leader.com SEPTEMBER/OCTOBER 2017
> By Chad Gregory
most significant food industry transitions of our time. Another pressing question for retailers: Will enough egg farmers be ready? USDA has estimated that if grocery, restaurant and foodservice customers actually meet their transition commitments, within eight years or less, 228 million egg laying hens will need to be housed in cage-free environments, and they will produce more than 63 billion eggs. To meet the needs of announced transitions in the grocery sector alone, well over half the current egg-laying hen population will need to be in cage-free housing. Today, only about 10 percent (29 million hens) of all U.S. flocks are raised in traditional cage-free housing. Getting to 2025 levels is not a switch that can be flipped overnight. It is not practical, nor feasible, to make this transition quickly. Egg farmers who intend to participate in cage-free production know they must start planning now – and investing millions to construct new cage-free barns. Equal parts strategy, communication, commitment and trust between egg farmers and their customers are an absolute necessity — these familyowned and -run farms cannot make multi-million-dollar investments based on announcements alone. UEP’s farmer-membership supports all types of hen housing for egg production, when they provide for proper hen health and well-being and meet or exceed all food safety requirements. Consumer choice is a good thing, and grocery shoppers are fortunate to have a wide variety of options in the egg case. Unfortunately, the hen housing debate in most cases has left consumers confused and muddied the waters around hen welfare. Choice also matters for many Americans who rely on the WIC or SNAP programs. Eggs are one of the most affordable sources of high-quality protein — and a staple for most families. While laws may vary, many states do not allow SNAP or WIC recipients to rely on government benefits for the purchase of cage-free or other specialty eggs. Assuring an abundant supply of safe, nutritious eggs for consumers, while also maintaining the long-term competitiveness and viability of the egg industry, is critical. Doing so in response to the customer requests from America’s retailers is equally important. Together, UEP’s farmer-members and retailers can navigate the complexities of a transitioning market and meet our obligations to our flocks and to the consumers we serve. RL Chad Gregory is President and CEO of United Egg Producers, a cooperative of U.S egg farmers who represent more than 90 percent of U.S. egg production.
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