RL - Mar/Apr 2018

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Where Tomorrow’s Shoppers Are Heading

And the

9 Trends

YOUR Affecting their

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Retail Leader MARCH/APRIL 2018 VOL. 8, NO. 2


RISE OF THE ANKLE-BITERS. Move faster or be eaten alive by a new breed of competitor swarming at your feet.


GOING VERTICAL. CVS Health’s pending acquisition of Aetna shows how to execute a business model transformation.


retailer Indochino went the clicks-tobricks route years early and is now opening stores at a record pace.

14 GROWTH DONE RIGHT. Fresh Thyme Farmers Market is quietly putting in place building blocks for lasting success while disruption swirls about the food retailing world.


BATTLE OF THE RETAIL BOTS. The rise of chatbots and conversational AI are ushering in a new era of digitally enabled commerce.

20 MAKING SENSE OF 5G. Prepare now to reap the benefits of a faster, more efficient future enabled by the blinding speed of the next generation wireless network. 22 SUPPLY CHAIN

GROCERY DELIVERED. Retail Leader spoke with Nilam Ganenthiran, Chief Business Officer at Instacart, and Chris Bryson, Founder and CEO of Unata, about the future of food retailing.



HUNGRY FOR GROWTH. Consumer goods companies coping with shifting industry dynamics are on the hunt for emerging brands eager to scale.


MARKETERS BEWARE. Retailers and brands should pay attention to five key areas to avoid getting burned by federal and state regulators.


9 TRENDS AFFECTING YOUR FUTURE. We detail the most significant trends affecting future shoppers and the industry.

38 SOCIAL RESPONSIBILITY LIGHTING THE WAY. How Walmart reduced energy costs by $100 million and fueled sales growth in the process.


PRACTICAL INNOVATION. The Fourth Industrial Revolution is well underway, requiring every organization to move with an acute sense of urgency to execute an innovation agenda.

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

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

MARKETING Brand Marketing Manager Carly Kilgore ckilgore@ensembleiq.com

AUDIENCE DEVELOPMENT Director of Audience Development Gail Reboletti greboletti@ensembleiq.com Audience Development Manager Shelly Patton spatton@ensembleiq.com

ART/PRODUCTION Director of Production Kathryn Homenick khomenick@ensembleiq.com Advertising/Production Manager Roz Gilman rgilman@ensembleiq.com Art Director Bill Antkowiak bantkowiak@ensembleiq.com Art Director Regina Loncala rloncala@gmail.com Subscriber Service/Single-Copy Purchases EnsembleIQ@e-circ.net Reprints, Permissions and Licensing Contact Wright’s Media at ensembleiq@wrightsmedia.com or 877-652-5295

Executive Chairman Alan Glass Chief Executive Officer David Shanker Chief Operating Officer & Chief Brand Officer Richard Rivera Chief Business Development Officer Korry Stagnito President of Enterprise Solutions/ Chief Revenue Officer Ned Bardic President & Executive Director, Path to Purchase Institute Mike McMahon Chief Digital Officer Joel Hughes Chief Human Resources Officer Jennifer Turner


Retail Leader.com MARCH/APRIL 2018

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


Retail Leader is published eight times yearly by EnsembleIQ: 8550 W. Bryn Mawyr, Chicago, IL 60631; Phone 224-632-8200 Fax: 224-632-8266. www.retailleader.com For address changes, send to Chicago, IL address or e-mail spatton@ensembleiq.com. © Copyright 2018

PoWeRfUl iNgReDiEnTs fOr rEtAiL gRoWtH LABEL TRANSPARENCY Your customers read labels. They’ll get the whole, simple truth from ours.

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ATTRACTING NEW CUSTOMERS Are you staying tuned to trends, and having the manufacturing support in place to grow in today’s Millennial driven marketplace? A Blount partnership gives you answers.

Let our track record helping retailers maximize sales and profits in the prepared food category help you. Let’s talk. Call Bob Sewall, EVP of Sales and Marketing, at 401.523.6210 WWW.BLOUNTFINEFOODS.COM

letter from the


More with Less Retailers can improve customer service and grow sales by cutting jobs. It’s not as crazy as it sounds. The retail industry is often compared to the Darwinian struggle that exists in nature. There are always some companies expanding, innovating, thriving and hiring. Others are struggling, losing market share, closing stores, laying off workers and stiffing creditors. In retail, as in nature, you are either growing or dying. The thing both have in common is the need to control expenses. No company grows and prospers solely through expense control, but in the survival-of-the-fittest retail world, a company’s expense structure is the cornerstone of long term success. This is especially true for those in the super competitive and lower margin world of food, consumables and health and beauty care. For these operators, expense control has entered a new dimension of relevancy. This new dimension will unfold in the coming years in a couple ways that are likely to see most retailers further shrink or alter the composition of their workforce, especially at the store level. First, technology is changing every aspect of the industry allowing many tasks to be automated. At the headquarters level, artificial intelligence can make faster, better decisions about assortments, pricing and marketing spend free from the emotional attachment humans have about legacy business decisions. Imagine a future where instead of a retailer employing a team of merchants and buyer assistants who work long hours to cram in meetings with suppliers, a handful of data scientists create a platform in which algorithms are in charge. In stores, technology can replace certain tasks that humans aren’t very good at or find undesirable: stuff like taking inventory, providing product information to shoppers or staffing checkouts. The ascent of technology means new use cases emerge regularly with the potential to eliminate instore jobs. The most dramatic of these is the cashier-less store that removes the most friction-filled aspect of shopping. Looking more broadly at staffing levels, technology is also undermining the role of the friendly, knowledgeable store associate as a provider of customer service. When most people walk around with access to the collective knowledge of the universe in their pocket, the store employee’s value as a provider of information is greatly diminished. Likewise, many retailers cling to the romanticized notion of friendly associates as an aspect of their value proposition even though delightful encounters with store employees seem to be fewer and farther between. Younger shoppers, those who still go to stores, don’t expect and some prefer to not have such interactions because they aren’t wedded to outdated notions of what in store customer service used to be like. Look into the future and think about the expectations a new generation of consumers will have of the retail industry. How they think about convenience and customer service. It’s not hard to envision that retailers operating with expense structures bloated by store level labor and corporate overhead will be disadvantaged relative to those finding ways to exploit technology and curtail labor costs to serve shoppers in new, different and better ways. To compete, traditional retailers have a fine line to walk in the years ahead. The need to reduce labor costs is occurring as wages are rising along with expectations that retailers provide more generous benefits. Meanwhile, reduced store staffing levels could negatively affect store experience at a time when that vague concept is billed as a competitive advantage to online only retailers. Then there is the public relations angle. Job cuts make for sensational headlines in a clickbait world where there is little interest in telling the more nuanced, less SEO-friendly story about realignment of labor expenses and leveraging of technology to operate more efficiently and better serve customers. Retailers can continue to maintain that their people make the difference. It’s just that there will be fewer of them, performing higher value work enabled by technology at a lower overall cost. RL

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


Retail Leader.com MARCH/APRIL 2018






With nearly 10,000 stores nationwide, it is easy to view CVS Health as simply a chain drug store operator. It is certainly that, but assuming its $69 billion acquisition of Aetna closes later this year, the combined company will represent a new breed of health care provider that President and CEO Larry Merlo contends will remake the consumer experience. Benefits of the deal put forth by the companies center on leveraging data to offer a more personalized health care experience by connecting to Aetna’s network of providers, integrating data and analytics to improve patient health at reduced costs by avoiding unnecessary hospital readmissions. Other benefits include the opportunity to better fight chronic diseases while addressing the escalating cost of treatment through a growing roster of services available at stores and an expanding network of Minute Clinics. Exact details of how the companies plan to leverage their scale will come into sharper focus after the close, but if history is any indication, whatever initiatives are put forth will be innovative. Throughout its history, which boasts an impressive list of acquisitions and state-of-the-art initiatives, CVS Health has nurtured a reputation for innovation and thinking outside the box. Whether it was its aggressive efforts to improve store merchandising, the development of private brands, the launch of the ExtraCare loyalty card, the elimination of tobacco products or the expansion of its health clinics, CVS Health has always been committed to championing innovative platforms to drive growth. The approach has helped differentiate its brand from other drug chains and health providers while preparing the company to win in a dynamic health care industry often viewed as President and CEO Larry Merlo of CVS Health.


Retail Leader.com MARCH/APRIL 2018

overdue for the type of consumer-friendly disruption that has reshaped other industries. CVS knows a thing or two about reshaping itself. Its pending acquisition of Aetna, which was announced in December and is expected to close in the second half of 2018, is the latest chapter in a decades-long saga of transformation. The company’s remarkable journey has seen it go from being a division of a retail conglomerate to one of the chain drug industry’s dominant players that is now on the cusp of becoming a uniquely positioned provider of health care. Up until the mid-90’s, CVS was a division of Melville Corp., a retail conglomerate that owned diverse collection of brands including Marshalls, Wilson’s Suede & Leather, Thom McAn Shoes and Kay-Bee Toy Stores. In 1995, Melville spun off other pieces of its retail operation and rebranded itself as CVS. The company proceeded to roll up the chain drug landscape by acquiring Revco, Arbor, Eckerd, Sav-On, Osco, Long’s, Navarro and Target Pharmacies. Despite all the deals and CVS’s growing physical presence, along the way its non-retail growth led to big changes in the composition of its sales mix. The acquisition of pharmacy benefit manager Caremark over a decade ago meant CVS was less and less dependent on sales from non-pharmacy categories, or what drug store operators refer to as the front-end. For example, in the mid-90’s, CVS sales were nearly evenly split between pharmacy and front-end sales. However, as pharmacy sales grew more rapidly and with Caremark revenues in the mix, front-end sales as a percentage of the total company became ever smaller. Amplifying the situation further was the fact that front-end same store sales have declined each of the past five years, due in large part to the decision to discontinue to the sale of tobacco products in 2014. The shift is evident in the company’s results for the most recent fiscal year. With total revenues of $185 billion during its 2017 fiscal year, sales from its Retail/LTC (Long-Term Care) segment accounted for $79.4 billion. Within the segment, front end sales accounted for about 25%, or $19.8

billion. That is substantial figure, but it represents a little less than 11% of total company revenues of $185 billion. The declining contribution of front-end sales to CVS Health’s overall results promises to become even more pronounced in the year ahead. For example, during the current fiscal year, pro forma revenues for the CVS Health and Aetna combination are pegged at $221.4 billion. That means the slow growing front end business could sink to 9.1% of pro forma revenues, according to Retail Leader estimates. Furthermore, the potential exists for the front end business to sink to 5% or less over time as sales of commodity products industry-wide are projected to migrate to online replenishment while demographically advantaged businesses such as pharmacy and health care related services grow more quickly. Meanwhile, from a branded manufacturers’ perspective, CVS Health has placed an emphasis on its own brands. Its stores now stock 7,000 items that account for nearly 24% of front-end sales. “There are significant opportunities to expand our share of store brands by launching new products that build upon our core equities in health and beauty, while seeking opportunistic growth in other areas, where we can provide customers a good value. And as a result of our strength in store brands, along with the success of our promotional strategies, front store gross margin, once again, improved in the quarter versus a year ago,” said CEO Merlo after the company reported fourth quarter results.

STORES STILL MATTER Clearly there are opportunities for CVS Health to increase the productivity of its front-end selling space, a business challenge for all chain drug operators. CVS Health’s stores and other physical locations remain an incredibly valuable component of the company’s CVS Health delivery ecosystem, especially in post Aetna acquisition world. For example, CVS Health today consists of numerous businesses beyond or integrated into retail stores. The most obvious of these are the Minute Clinics. There are currently 1,100 locations, but the company has alluded to continued future growth and the potential exists to incent those covered by Aetna plans to seek treatment at clinics. Other less visible but hugely important health care services include the Coram Specialty pharmacy business that provides infusion services to roughly 140,000 patients and the Ominicare pharmacy that provides services to long term care facilities. Then there are administrative services such as medical claims editing provided by the Novologix platform. In almost every respect, the combination of CVS Health and Aetna is seen enabling it to further enhance and improve its health care programs. The other benefit of executing the largest health insurance deal on record is that it enables the company to better compete with United Healthcare and pharmacy benefits manager Optum as well as offset any potential threat of Amazon entering the pharmacy business. “This is the next step in our journey, positioning the combined company to dramatically further empower consumers. Together with CVS Health, we will better understand our members’ health goals, guide them through the health care

system and help them achieve their best health,” said Mark Bertolini, Aetna chairman and CEO. Added Merlo, “These types of interventions are things that the traditional health care system could be doing, but the traditional health care system lacks the key elements of convenience and coordination that help to engage consumers in their health. That’s what the combination of CVS Health and Aetna will deliver.” While the pendulum has shifted from what once was a major dependence on retail front-end sales to a diverse portfolio of health care products, innovation has been the cornerstone that is transforming the company, creating a new health care entity, and preparing CVS Health for the decade of the 2020s and beyond. RL


Non-pharmacy sales at CVS Health’s nearly 10,000 stores will fall below 10% of total company projected revenues in 2018 as the company evolves its business model to become a new breed of health care provider. Year

Total Revenues

Store Count

Non-Rx sales as % total





















































































*Retail Leader estimates SOURCE: Company Reports

MARCH/APRIL 2018 Retail Leader.com





While retailers of food and consumables wrestle with the optimal approach to blending their physical and digital presence, an unlikely source of innovation inspiration comes courtesy of menswear retailer Indochino. The company’s unique operating model blends technology, high touch customer service, value pricing on made-to-measure products and a no-inventory supply chain to disrupt a major market and solve apparel retailing’s biggest challenge: returns. Early on, the 11 year old company was a darling of the digital world, but recent years have seen its greatest growth come from physical expansion. That makes Indochino something of a retail anomaly because up until Amazon’s 2017 acquisition of Whole Foods the instances of online retailers opening or acquiring physical retail were few and far between. About five years ago, Indochino began dabbling with physical retail the way many pure play e-commerce companies do — by opening popup stores. The limited duration venues proved popular enough with shoppers that Indochino committed to its first permanent physical location in 2014. In November 2015, Drew Green was named CEO of the company and a new mindset toward physical growth was adopted to scale the company’s business. “We’ve really grown up in the last few years and are fully committed to an omnichannel experience like no other,” Green said. “We’ve accelerated our growth by 50% over the past three years and retail has been at the core of that growth. It complements our overall experience and retail is now the number one way we acquire customers.” The company capped off its 2017 expansion plans by opening its 19th location at the Mall of America just south of Minneapolis, a venue that seems ironic given Indochino’s e-com-


Retail Leader.com MARCH/APRIL 2018

merce origins juxtaposed against the popular, yet flawed, narrative that malls are dying. “When we looked at our data, Minnesota was in the top five in terms of areas for expansion. Choosing the region was a natural progression and we secured a premium location that we think will do quite well,” Green said. “I’ve heard the phrase ‘retail apocalypse’ for a couple years now, but we have invested heavily to expand into retail and had to tune out the noise. I don’t think malls are dying but they are reinventing themselves. Because we are appointment-based we are not as dependent on overall mall traffic as other retailers are. Any walk-in traffic we get is additive.” Roughly half of the 18 showrooms Indochino plans to open this year will be located in malls as the company moves toward a goal of operating 150 locations by 2020. That essentially means the company needs double its physical footprint in each of the coming years and will be aided in doing so by the ready availability of leasable space in Indochino’s sweet spot of 2,500 to 3,000 square feet. The expansion goal is one Green described as deliberate as well as realistic because refinements to the operating model allow for rapid returns. “We re-engineered our cost structure internally and pass those savings on to our customers. We are also very efficient and payback on our showroom openings is less than 12 months,” Green said. “We are virtual inventory so that gives us an advantage against our competitors because I don’t have to invest hundreds of thousands in inventory that I have to hope sells through. We are truly a showroom concept where you book an appointment, you are paired with a style guide, you create your own garment and we manufacture it. And 80% of the time we send it to you in under two weeks.” The approach has allowed Indochino to solve the profit drain Drew Green, CEO of Indochino, likes the way the company’s growth prospects look.

Indochino’s made-to-measure business model means stores (right) function as inventory free showrooms. The company’s expansion goals are aided by ready availability of leasable space in the 2,500 to 3,000 square foot range.

and inventory challenges caused by returns. Returns were already a big issue for physical retailers, but the arrival of e-commerce created new challenges as customers took advantage of free shipping and liberal return policies to buy multiple size and essentially use their bedroom as a fitting room. Still other commit outright fraud, wearing garments multiple times before returning. “Our return rate is .01%,” Green said. The figure is so stunningly low that when asked to repeat the number Green expands on why Indochino doesn’t have return issues. “Fit is the number one issue that causes returns and returns are devastating to the P&L. Because we are so focused on a perfect fit, we don’t have the issues that other apparel merchants have,” Green said. “Sometime you return things because you thought you liked something, but in our process you are creating a one of a kind garment and there is a lot of pride of ownerhsip in that process.” The expanding network of showrooms also helps reduce returns because when a fit isn’t perfect Indochino has in-house tailors who can make adjustments. In cases where a customer doesn’t live near a showroom, vouchers are offered to defray the cost of using a local tailor. Either way, operating with a .01% return rate has helped the company achieve 50% gross margins, according to Green, who declined to share the company’s annual sales. Profitability is further aided by a unique sourcing arrangement entered into two years ago. Indochino partnered with Dayang Group, the largest suit manufacturer in the world, deepening its commitment to the company and receiving a $42 million investment in return.

“I felt that no one in the industry could scale in a way that I foresaw demand dictating so we partnered with the largest suite manufacturer in the world and vertically integrated our Chinese operations into their factories,” Green said. The company plans to be transparent about the sourcing arrangement too. Green said he recently approved new treatments to showrooms that include videos displaying how garments are produced and signing emphasizing quality, integrity and craftsmanship, attributes which aren’t often associated with Chinese manufacturing. “We are really going to highlight those things as part of our brand and consumer experience,” Green said.” As for the potential growth headwind that no one wears suits anymore, Green chuckles while acknowledging the casualization of the workplace. “There is still a great demand for suits and suit separates. We estimate there are about 17 million suits sold in North America each year. It’s about a $7 billion market. It might not be growing like other categories, but the fact is you still need a great fitted suit whether it is for an interview, work, a wedding or special occasion.” Green’s view is that an entire new generation of customers are choosing custom and madeto-measure over ready-to-wear clothing. In addition, the expansion of physical retail is improving the company’s operating model while exposing new shopper segments to the brand. For example, online about 65% of customers are Millennials. However, with physical locations Indochino is seeing more Gen X and Baby Boomer customers. “Commerce is commerce,” according to Green. “E-commerce gets all the fanfare, but smart companies are figuring out how to do both.” RL

“We re-engineered our cost structure internally and pass those savings on to our customers.” —Drew Green, CEO, Indochino

MARCH/APRIL 2018 Retail Leader.com


Retail Pulse

the heartbeat of the marketplace

Artificial Intelligence and Machine Learning

In retail and CPG, AI and ML have permeated the entire business planning process.



rtificial intelligence (AI) has Scalability and Smart Decisions: already made a huge impact on There is a ton of data that needs to our world, often in ways we don’t be synthesized and interpreted. Then, even realize. Along with machine best-practice recommendations need to be learning (ML) and deep learning, granular at markets and retail stores, and conAI drives online advertising, Amazon “suggessumer segments/individual consumer level. tions” and “recommendations,” sponsorship messages when you’re innocently looking at baby Managing Complexity: Faced with a pictures and food photos on social media, and so difficult and time-consuming process, much more. Artificial intelligence is around us especially on squeezed budgets, AI and all the time, and it’s affecting how we work, shop ML can expedite the process and minimize time By KK Davey, President, and play, whether or not we realize it. and expertise investment required to get it right. Strategic Analytics, IRI In retail and CPG, AI needs to play a role in This saves money and helps to boost margin. the entire business planning process in order to fully understand, engage with and activate consumers To harness ML and AI for disruptive improvements across a today. AI capabilities are already entrenched within number of sales and marketing business decision areas and to demand identification, product development and win with speed-to-insights, scalability and smart decisions, and in-market execution, as well as marketing. However, there managing complexity, it’s imperative to focus on: is a larger revolution happening here, encompassing big Spotting trends data, technology and AI, and organizations that want to Sizing up opportunities win in the future must embrace it. Managing revenue across price and To win, retailers and CPGs alike must use AI as the trade promotion levers catalyst for three powerful aspects: Assortment planning



Speed-to-Insights: The CPG world is changing at an

amazingly fast pace and CPGs need to keep pace with change — across all elements and trends, assessing their importance and reacting appropriately and quickly.

Developing effective marketing programs TrenD SpoTTIng

The speed of production, marketing and activation, as well as the evolution of alternate channels and unpredictable

TrenD SPoTTInG: A Dynamic and real-time Algorithm to Spot Trends and Anomalies pattern recognition

Source: IRI Consumer Network™


Retail Leader.com March/april 2018

Trend Detection

Attributes That Matter

Data & Insight Provided By

DemanD Forecasting: Fully automated Process to select the optimal Forecast from thousands of machine Learning-generated models Forecasting model Driver selection Forecast outputs

“What if” scenario Planning

Source: IRI Consumer Network™

consumer buying patterns, have presented a more challenging environment to interpret than ever before. CPG companies and retailers now have to balance unprecedented large data streams with the need to make decisions faster than ever, and increasingly fluid consumer buying trends make speed-to-insights imperative. Traditional models don’t keep up, but artificial intelligence and machine learning can contribute greatly to the speed at which CPGs and retailers can identify and act upon trends. They can take advantage of high computation frameworks, advanced storage and the power of machine learning. These technologies can analyze multidimensional historical data to identify trends and anomalies for products and attributes, and interpret their impact on growth and market share. Further, an entire company’s portfolio could be analyzed to identify risk factors to the entire business, or intelligence could be applied to a retailer’s total store across categories and pricing in order to identify misses and potential opportunities against other retailers. Speed and scalability allow for more impactful business strategies, and smart decisions are made and powered by deep analytics, benchmarking and solution automation. DemAnD ForecAsting

Artificial intelligence possesses the power to finally put accurate demand forecasting within reach for CPGs and retailers. Demand forecasting plays an integral role in operations, finance and sales, however, the demand for high-quality forecasts often outstrips the pace at which they are produced. Fully automated forecasting at scale can select optimal models and provide forecasts from thousands of machine-generated models. With the use of automation and learning algorithms, the need for human discretion is eliminated and thus so is human error. Processes — and actionable insights — are faster, and the complexity is minimized.

Pricing, Assortment PlAnning, mArketing

By examining pricing trends, deep learning algorithms can establish limitations and automatically set the right boundaries for pricing. This also allows for an easier understanding of growth opportunities and the ability to have good price intelligence to monitor weekly price changes and performance assessment at a granular level. By using AI technology to study pricing and react to changes in the marketplace, pricing becomes more predictive than prescriptive, and much of the tedium of the process is eliminated. The realistic price combinations allow for CPGs and retailers to have a real and accurate assessment, saving time, energy, resources and driving growth and profit — minimizing complexity and maximizing results. Similarly, artificial intelligence can help pinpoint the right assortment, helping retailers best utilize the highly valuable space within their walls. The next generation of assortment solutions is able to leverage machine learning algorithms to create prescriptive insights. This traverses all retailers, items and key product attributes to discover the opportunities that produce the most growth, by store. Another way that machine learning contributes to this new wave of prescriptive insights is to identify the groups of attributes that consumers naturally consider as comparable or unique by discovering demand-based patterns. This shopper-centric approach means retailers will better connect with their specific markets. In order to compete in an increasingly high-tech space, assortment planning must be more scalable and focused on the future. Artificial intelligence has changed — and will continue to change — the way retailers approach pricing, assortment and marketing. Speed to insights and action, scalability and managing complexity are daily challenges, all of which are alleviated with state-of-the-art technology that will take this industry and so many others into the future with great opportunities and growth. RL March/april 2018 Retail Leader.com



Growth Done Right



Fresh Thyme Farmers Market CEO Chris Sherrell has earned a reputation as a retail industry innovator and someone willing to go against the grain. He embraced the natural and organic movement long before traditional grocers with key roles at Wild Oats and then Sunflower Farmers Market. Now, as CEO of Fresh Thyme, a company founded in 2014, Sherrell is taking a different approach to innovation by focusing on retail fundamentals and the pursuit of selective new initiatives designed to differentiate and facilitate the company’s growth. The operator of 68 stores throughout the Midwest grew dramatically in 2017 with the addition of 20 new locations, fine-tuned a 320,000-sq.-ft. distribution center that came online in 2016 and filled key senior leadership roles such as chief merchandising officer and chief financial officer. Now the company is pressing the pause button on expansion with roughly 12 new stores planned for 2018 while it implements a wide range of information technology efforts that will serve as the infrastructure to drive longer term growth. “We’re trying to build a business with a strong foundation on systems and discipline. We’ve spent a year implementing all these new systems from, auto replenishment to backdoor receiving to different category reports to our distribution software and out of stock reports,” Sherrell said. Other recent efforts have focused on a new labor standards system and an auto replenishment and inventory management system from NCR that is expected to be operational by summer. “We really want to create a sustainable business that has a great foundation of technology and systems.” Sherrell describes himself as “a grocery systems guy,” and it’s no wonder. He started working in the grocery industry when he was just out of high school with a job at Wild Oats making $5.25 an hour. Since Chris Sherrell, CEO of Fresh Thyme, believes the company could double in size by 2020.


Retail Leader.com MARCH/APRIL 2018

then he has racked up more than two decades of experience working for Wild Oats, Sunflower Farmers Market, and Fresh Thyme. During this time, Wild Oats was bought by Whole Foods in 2007, and Sunflower Farmers Market merged with Sprouts Farmers Market in 2012. He launched Fresh Thyme in 2014 after identifying an unmet need for a natural foods retailer in the Midwest that offered shoppers a healthy lifestyle at an affordable price. “Our consumer is a lifestyle customer. They’re looking to live a lifestyle, change their lifestyle. They need education,” Sherrel said. “They need way finding, demos, samples and they need to understand what they’re doing. They need to touch, feel, taste, and really ultimately at the end of the day talk to somebody.” To deliver on that value proposition, Fresh Thyme’s stores are meant to resemble a farmer’s market, with a focus on fresh organic and natural foods, and a large selection of bulk goods. The stores boast natural meats raised without hormones, seafood flown in daily and locally roasted organic coffee beans. Over the past year Fresh Thyme added organics to its prepared foods department launching juice and sandwich counters, and expanding its salad and olive bars and upgrading pizza ovens. The company has also rapidly expanded its private label range introduced in 2015. The Fresh Thyme brand grew from 400 items to more than 1,000 last year as the company moves fast to jump on the latest food trends. “Our private brand, within six to eight to 12 weeks of putting it into a category becomes the number one item in that category,” Sherrel said.

THE SIGNIFICANCE OF SIZE At about 28,000 square feet, Fresh Thyme stores are about half the size of a typical supermarket, which Sherrel believes makes them more shopper friendly. “We looked at size so many times. We always come back to where we are. You could make it a little smaller to fit it in some urban areas, but we don’t feel like going bigger is going to change anything at all,” Sherrel said.

Fresh Thyme’s merchandising strategy involves creating a farmer’s market feel in fresh (left) along with an offering of bulk foods (below) and a growing private label business that now includes more than 1,000 items.

Store size also simplifies site selection which is important as the company pushes eastward into more densely populated areas. The first Fresh Thyme in Pennsylvania is slated to open later this year. Fresh Thyme stores are currently located in nine states including Wisconsin, Minnesota, Michigan, Missouri, Nebraska, Indiana, Illinois, Iowa and Ohio. If the company continues expanding along the East Coast, it would consider opening another DC, but the current facility should be able to support more than 100 stores in the next few years, according to Sherrell.

EXPERIENCE MATTERS A slew of operational priorities promise to keep Fresh Thyme busy this year. The company plans to ramp up grocery delivery, launch a new website and app, create an enhanced loyalty program and prioritize employee development. “We want to create a great working environment to create a company that has ‘team’ in mind and promotes opportunity, good wages and good benefits. And we want to have a great morale and create a culture of leading, teaching, coaching, and inspiring. So that Fresh Thyme is a place that not only the consumer wants to come and shop at but is also where people want to come to work because they believe in what we’re doing, and they know that there’s great opportunity if you want it,” Sherrell said. That mindset plays into Fresh Thyme’s value proposition as a company that values community, authenticity and sustainability in how it operates. Fresh Thyme says it’s on a mission to improve the way communities eat by constantly improving the food supply chain. It’s a narrative that connects with the increasing number of consumers who care about where their food comes from, how it’s processed, and how all of that affects the environment. Another facet to Fresh Thyme’s sustainability strategy involves getting rid of paper circulars. “One of my goals is to get rid of circular paper fliers over the next three to five years completely and really move the business to the digital, mobile, web platforms. Whether it’s a cost initiative or a green initiative, there’s

plenty of reasons I’d love to see (paper) fliers be a part of the past,” Sherrell said. As for the future, especially where digital is concerned, Fresh Thyme is looking to roll out delivery options this summer. “We decided to really focus on home delivery before we focused on click and collect. Part of our secret sauce is convenience. We don’t have big stores,” Sherrell said. “Yes, it would be nice for someone to click, drive up and collect some groceries, but they are in and out of our stores in 15, 20 minutes anyway. While we have not ruled out click and collect at all, we felt that home delivery was the better option to go with first.” As the company pursues its growth strategy it has somewhat of a secret weapon in that it was founded with support from Meijer, the highly regarded operator of 230 supercenters. How much or little Fresh Thyme benefits from its Meijer relationship isn’t clear and the companies provide few details. However, what is clear is that Fresh Thyme is investing in a lot of business processes, capabilities and technology that give the company a strong foundation for growth, even if it means curtailing expansion in 2018 enroute to a goal of 150 locations by 2020. “We’ve got huge training initiatives, huge digital and web and mobile initiatives along with getting the culture really down into the core business and so we can really set ourselves up for success,” Sherrell said. “Growing fast is one thing, growing fast and sustainable is the most important thing.” RL MARCH/APRIL 2018 Retail Leader.com




A glimpse at the minds and personalities of IRI’s thought leaders. Developing a marketing program designed to grow a business takes expert planning and analysis, but many retailers don’t leverage the full power of their data to help refine their marketing strategy and improve ROI outcomes. Building a marketing campaign used to be filled with uncertainty. If your team miscalculated which channels or messages best activated your target audience, you had no choice but to ride out the rest of your campaign with a suboptimal allocation of resources…and suboptimal results. “Watch and wait” days are over. Marketers have the ability to integrate predictive insights with real-time results data and improve a campaign at every stage. Nishat Mehta, president of the IRI Media Center of Excellence, shares how retailers can harness the power of data to improve marketers’ precision and efficiency.

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.

Q. How should innovations in measurement change how retailers approach marketing campaigns? A. The planning, implementation and measurement phases of a marketing campaign used to be sequential and discrete. IRI’s marketing mix and IRI Lift™ solutions work together to form an integrated measurement platform. With capabilities like these, marketers can build a plan based on all tools, tactics and actions available to them, and then refine, adjust and optimize their campaigns mid-flight and run continuous precise predictive models to ensure each tactic is executed most effectively. At IRI, we view a marketing campaign as an endless loop of insights, planning, targeting, activation, measurement and optimization. Each rotation through the loop makes your marketing decisions more impactful. Q. What surprises you about the way retailers are currently using their data? A. I’m surprised at how many retailers are sitting on a trove of loyalty card data, but aren’t maximizing its value by using it to inform their marketing strategies. With the right tools to unlock insights, retailers can learn so much about their customers. Q. Are there any new media forms that are particularly exciting to you right now? A. IRI is laser-focused on helping deliver growth through improved collaboration and personalization on the only technology platform that can do both: IRI Liquid Data®. Our goal is to make all consumer activation personalized, precisely targeted and measured. We do that through integrated consumer data and ecosystem on the consumer’s total path to purchase, the precise activation of every impression and interaction, and real-time accurate sales measurement. Liquid Data is accessible anywhere and features best-in-class visualization capabilities; it’s completely open with an always-on connected ecosystem; and it’s simply wicked fast. Q. What are some new innovations that IRI is bringing to the market? A. I’m a firm believer that the future of advertising will come from customer-summoned channels, such as voice and augmented reality, rather than media channels that interrupt as most do today. As those media develop, IRI is focused on learning more about how our clients can increase advertising relevance to target, reach, and engage their audiences. Q. What does the marketing shift to e-commerce mean for brick-and-mortar retailers? A. The perception of an impending brick-and-mortar apocalypse seems misplaced. Humans are inherently social creatures and will always have a desire to connect with others when making decisions about what brands to purchase and consume. The data show that retail stores remain extremely valuable marketing assets but need to be reimagined. Q. Only keep one: Netflix or Hulu? A. Netflix. I can’t wait for the next season of Stranger Things.


Battle of the



The Internet fundamentally changed the very nature of commerce. It was easy to see the appeal of online shopping when we started building websites in the 1990s: It was much more convenient than visiting a physical store. In the years since, retailers have watched statistics steadily climb as people make more of their purchases directly through digital channels. The latest proliferation of connected devices and improved technology platforms have served to only feed these numbers, and brands, in turn, are rethinking their marketing strategies to meet consumers’ needs. But this so-called revolution has proven fruitful for only a small number of businesses — most notably juggernauts such as Amazon — while many others have languished. So I ask: Are retailers any better off now than they were two decades ago?

Not exactly. E-commerce has failed as a business model. While percentages vary considerably among categories, roughly 10% of total commerce today is conducted via websites and apps while a larger and more difficult to measure percentage of commerce is digitally influenced. The retail industry has been in dire need of disruption for years — and, thanks to the rise of newer technologies such as chatbots and artificial intelligence (AI), it’s on the precipice of a remarkable digital transformation centered on new methods of shopper engagement. It’s not surprising that bots and AI have occupied the headlines lately, as brands across industries start to integrate them into customer care and sales operations. Bots improve efficiency and reduce the cost of labor, either interacting with customers directly or assisting agents on the back end. They can handle repetitive tasks already ripe for automation while freeing up humans for more complex requests. AI can instantly provide deeper insights into consumer intents, patterns, and behaviors. There are myriad benefits to these technologies. With conversational commerce providing the third leg of digital — following first the web and, more recently, mobile — the retail industry will soon undergo a drastic change. Some retailers are already using AI-backed products to streamline customer relations and propel their businesses into this new era — and as they begin to see success in sales and customer retention, more will certainly follow.


LivePerson Founder and CEO Robert LoCascio contends Chatbots and AI are about to fuel a remarkable digital transformation.


Retail Leader.com MARCH/APRIL 2018

Conversational commerce is more than a buzzword that’s captivated tech companies and innovation-forward brands alike. It has the power to completely transform how people communicate with, and get information from, brands. And those who do it best will set a new expectations standard with shoppers that others must meet or exceed to deliver superior performance. In a sense, conversational design is today’s web design — elevating customer experience to the forefront of all decisionmaking and enabling true relationship-based commerce not

previously possible through the web and apps alone. The year 2018 promises to be the year retailers discover a new level of interactivity, as conversational commerce enters the mainstream. Put into an e-commerce context, consumers can ask questions of and get answers from retailers without navigating confusing page layouts or parsing through lengthy FAQs. Virtual shopping assistants will recommend products, and concierge bots will handle individual transactions. Consumers will have the best of both worlds: the convenience of online shopping, and the personalization of shopping in store.

amenable to the technology: One third (38%) report they have a positive perception, compared to only 11%, who view bots negatively and the 50% who are indifferent, provided their issue gets resolved, according to a LivePerson survey of 5,000 consumers who have used a bot three or more times.

WHAT BUYERS WANT: A PERSONALIZED, CONVENIENT EXPERIENCE Consumers seeking information will soon be able to engage both humans and bots — the latter handling standard or frequently asked questions, where they can immediately demonstrate their value, and humans taking over for more complex requests. Conversational commerce will be the amalgamation of convenience and personalization that, ultimately, will drive richer, more fulfilling interactions, satisfying both consumer and brand. For retailers, the integration of bots into their digital properties will have an outstanding effect. Shoppers inevitably have questions, but finding answers on their own has proven difficult. They risk getting lost in the FAQs or not finding the results they’re looking for — or simply being turned off by bad UX design — causing shopping carts to be abandoned and sales left unclaimed. Websites are rife with shortcomings. But this next, conversational iteration of digital will make leaps and bounds to solve for them. As conversations replace great parts of the web, retailers can — and should — capitalize on the technologies to bring the benefits of the in-store experience to their digital properties, personalizing the consumer journey through the most convenient channel. RL

MESSAGING: THE NATURAL HABITAT FOR BOTS AND AI The consumer preference for messaging is already evident in their personal lives. And it’s become the consumer expectation for brands — across industries — as well. It’s no longer acceptable for brands to operate solely within the confines of business hours or through traditional channels like voice and e-mail. Consumers have flipped convention on its head, demanding brands be available on their time and terms, via asynchronous communications through their channel of choice: i.e., messaging. Nowhere was this more evident than during the 2017 holiday season. Cyber Weekend broke records, with customer service messaging seeing 160% year-over-year growth and a 72% increase in mobile interactions on the LivePerson platform. The charge for retailers is to meet consumers where they are — or stand to lose them altogether. Introducing bots and AI to this channel helps brands do just that. They can also provide a high level of personalization at scale and around the clock. Used correctly, bots are a cost-effective solution businesses can deploy to drive online sales. Consumers that have used bots in the past are

Robert LoCascio is CEO of LivePerson, a leading provider of online messaging business solutions he founded in 1995.








40% 30%









20% 12%







0% US

UK n Positive

Australia n Neutral




n Negative

SOURCE: LivePerson research.

MARCH/APRIL 2018 Retail Leader.com





Recent news of a proposed White House-driven nationalized 5G network has renewed questions and interest in the upcoming and much-hyped technology. Businesses want to know what 5G is, how it is different from 4G LTE, and how it can improve the way they do business. As it looms on the horizon, we can expect 5G networks to have a significant impact on the retail industry, but it is important to begin with an understanding of how fifth generation, or 5G, is different from fourth generation long term evolution, or 4G LTE networks. 4G LTE has been around since 2010, representing the vast majority of our mobile and business wireless networks. Having displaced 2G and eventually 3G networks, 4G and then 4G LTE gained notoriety for providing performance that is faster than wired networks. Its improved latency (responsiveness) and faster speeds provide advanced flexibility of time and place, enabling users to fully take advantage of things like video conferencing and live streaming for music and video without the annoying stuttering or freeze frames. As the next and greatest generation of wireless networks, 5G is expected to be 10 times faster than 4G LTE speeds with latency in the single digit milliseconds. The exponential improvement in speed is why 5G is heralded as the driving force that will unlock the potential of the Internet of Things, 4K video, remotecontrolled robotics, telemedicine, autonomous driving, virtual reality and augmented reality. Today, we are still in the very early stages of realizing the full potential of 5G with wireless network operators conducting trials this past year. At the moment, it’s limited to a few cities and only available in fixed wireless, i.e., no mobility, since that functionality will only come once the standards are complete. Meanwhile, 4G LTE is practically universal and those investments will not be shelved when 5G enters the market. That is a key misconception, that 5G replaces 4G LTE networks, instead, the two will work in a complementary fashion to handle different types of traffic most efficiently based on the requirements of the traffic. However, once here, 5G will impact retailers in two fundamental ways. Initially, it’s expected to greatly


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improve all the things retailers do now with 4G LTE to make money, save money, be more competitive and offer shoppers superior in store and online experiences. And then, after a period of maturity, it will open the doors to a whole new age Lindsay Notwell, SVP, 5G Strategy & of capabilities. For Global Carrier Operations, Cradlepoint example, here are a few ways retailers are using 4G LTE now and how 5G will provide improvements. Keeping the Internet on with failover networks: Failover networks enable retailers to keep the Internet and networks running by allowing devices to switch to a backup network when the primary source goes down. 4G LTE has made this approach faster, more reliable and easier to manage. Opening stores faster by eliminating the wait for wired networks: In the past, it’s been difficult to time the opening of a store with the installation of a wired network. With 4G LTE wireless capabilities, stores can either drop in a temporary wireless network until the wired infrastructure is installed. We call this capability a “Day One Internet.” Or they can even forego the wires altogether. Mobile stores and kiosks: 4G LTE networks have also made it easier for retailers to set up kiosks without an employee present. And to set up mobile stores with mobile on-demand networks to take products on the road to meet consumers practically anywhere. Improving IT security with parallel networks: With 4G LTE it’s now easier for retailers with multiple

remote locations to secure sensitive data by creating application specific, parallel networks. With this capability, it’s easier to monitor, easier to lock down, and easier to prevent hackers from crossing over from one application to another. It’s also a key tool in maintaining PCI compliance. 5G makes all of this faster and more innovative: 4G LTE has made all of these capabilities accessible, and easy to deploy and manage. 5G networks with 10X the performance will take all of these to a higher level with networks that are more reliable and farther reaching while delivering content like 4K video or virtual reality programs virtually anywhere, all without having to rip and replace existing 4G installations. Many retailers already take advantage of new technologies such as IoT, using 4G LTE. For example, a restaurant or grocery store can receive alerts when a refrigerator’s temperature is too high or too low. Store management can be notified when a particular item needs to be restocked. The extra bandwidth of 5G will enable retailers to fully process volumes of information generated by sensors and quickly put it to use. The extra bandwidth of 5G will also make security surveillance more effective with the ability to process high-resolution video, instead of the grainy black and white footage. One more futuristic possibility involves stores being able to use holograms to interact with customers. Or, mobile retail store vehicles might be

equipped with mirrors that simulate trying on clothes. As retailers keep up with the ever-increasing demands of millennials for media-rich interaction wherever and whenever they desire, savvy retailers will utilise high resolution video, augmented reality, and even virtual reality to differentiate themselves from the competition. Standing out from the crowd in ways that engage customers is a great way to increase revenues and loyalty at the same time. However, some of the more “mundane” applications of this new technology can have a significant impact to a retailer’s bottom line. Whilst the performance of 5G networks is expected to rival that of fiber optics, the cost of 5G is expected to be, in many cases, significantly less, since installing fiber to a building requires gaining building permits, digging trenches, etc. 5G won’t just roll out all at once. It will start in densely populated areas and hand off traffic to 4G LTE when moving outside those areas to ensure continuous coverage. I believe 5G will launch in 2018 with the first U.S. commercial networks from either AT&T or Verizon as they race to be first. And in 2019, we’ll see the first delivery on mobile devices. Retailers are in exciting times with the promise of revolutionary Internet performance and availability. The good news is the groundwork can be laid today with 4G LTE and gradually retailers can weave in the advancements and new uses cases made possible by 5G. RL MARCH/APRIL 2018 Retail Leader.com



Grocery Delivered Food retailers whose operating models were built and refined during a pre-digital era have been racing to improve digital engagement with shoppers and execute new forms of fulfillment. In recent years, many turned to San Francisco-based Instacart, founded in 2012, and Toronto-based Unata, founded in 2011. Instacart rose to prominence as a provider of grocery delivery services while Unata emerged as a digital experience company with technology solutions focused on making e-commerce seamless. Now the companies are one following Instacart’s acquisition of Unata in January 2018. Retail Leader spoke with Nilam Ganenthiran, Chief Business Officer at Instacart, and Chris Bryson, Founder and CEO of Unata, about the future of food retailing. >By Mike Troy

Retail Leader: Let’s start with what the Instacart network looks like today. Nilam Ganenthiran: We are operating in 190 markets across the United States and Canada. We serve about 63% of the households in North America and plan to cover about 80% of households by the end of 2018. We work with 189 retailers from large to small and have about 30,000 personal shoppers who pick, pack and deliver millions of dollars of groceries on behalf of our retailer partners. We work with some of the largest grocers in North America including Costco, Kroger, Albertsons, Publix, Ahold/Delhaize, H-E-B and Loblaw. We also work with large and high quality regional players such as Wegmans, Stater Brothers, Supervalu, Heinen’s and Homeland. RL: What’s the appeal to a retailer? NG: We have a heritage of being a technology-first company, and our founder Apoorva Mehta’s background is in fulfillment engineering and logistics. That was something he focused on while he was at Amazon. Store to home logistics, batching, route planning, those are not skill sets for traditional grocers who are great at the logistics to get stuff to the store. We help solve the hard technology problem of how to do last-mile fulfillment from a store in a very cost-effective way and we also help solve 22

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the problem of building a great front-end experience because the way a customer interacts with groceries is very different than other segments of e-commerce. RL: How so? NG: We had to figure out how do you make sure shoppers can pick, pack, and deliver groceries in a very fast and efficient, but also very accurate fashion, in stores that are actually designed for customers. Stores are designed for browsing and people taking their time and our model is dependent on people picking groceries really fast and really accurately. It is a technology problem. As we started talking to retailers, they realized there must be a better way than the way that everyone has tried to do it before. You can get pretty far trying to do it yourself, but there are challenges around having the technological expertise in-house. The bigger challenge is having the localized density and scale to be able to make the economics work. Because we work with multiple grocers within a city, we’re able to batch orders across stores and keep our personal shoppers highly utilized. What matters to our personal shoppers is how much they’re making per hour, meaning they need a lot of volume of orders every hour. These are some of the challenges that we’ve been able to take off the minds of retailers. RL: You referenced your founder’s background at Amazon. Now that capabilities like the type you offer are available to retailers, is the threat from Amazon overblown?

NG: We have the utmost respect and humility when you think about Amazon and what they’ve been able to achieve. They’ve

got an engine for innovation and passion for customer service that many organizations just haven’t historically had. Their relentless focus on the end customer has allowed them to win in things as disparate as cloud computing, to online e-commerce, to electronic e-readers and everything in between, which is pretty fascinating. That being said, we think that brick and mortar grocery is very hard and it is a very localized relationship that customers have, between the purveyor of food and their family. If you think about a busy mom, the choice of what to feed her family is one of the most important choices that she has throughout the day. When we talk to her, and it’s usually a her, there are a lot of psychological benefits she gets from feeling in control of what she feeds her family. Why does that matter, related to Amazon? That means that she has developed relationships with the H-E-Bs and Publix and Wegmans in her community over a period of decades and there is a great level of trust. It’s actually going to be quite challenging for Amazon to break that relationship. Brick and mortar grocers are also advantaged with great real estate that enables them to have easy access to customer’s homes. Not only have they built the stores where the demand is, but the assortment in these stores is tailored to what people in these communities buy. That level of customization, matching price, assortment, and brand to the local consumer is something that’s very hard to replicate by an e-commerce technology-only company. RL: How has Instacart’s financial model evolved? NG: Instacart has three revenue streams. We collect fees from retailers, typically on a revenue share basis. In exchange for picking, packing, delivering groceries, developing their catalog, taking pictures, building their site, answering customer service calls related to e-commerce – all of that package – they pay us a percentage of the transaction or a fixed dollar amount per delivery. The retailers maintain full pricing and merchandising control, and pay us a fee for the service. The next revenue stream is the customers who pay us a delivery fee or buys an annual membership and gets free deliveries for the year. The third revenue stream is the CPG community. If you think about it from an advertiser’s perspective, they are hungry to find a way to get closer to the customer’s purchase. While being retailer agnostic, CPGs are able to connect with the customer all the way from discovery down, not only to purchase, but repurchase, on one platform. We can drop a sample in the bag, and track whether the person who received the sample actually came back and bought the product. RL: How about on the cost side? NG: Our largest bucket of cost is our personal shoppers and their commissions or wages. Beyond that, we’ve got, obviously, our insurance cost, our customer support cost, customer service, we’ve got costs related to our technology and our hosting, all of that stuff, and the credit card swipe fees, we pay the credit cards money every time a customer transacts.

RL: Have you achieved the scale to be profitable? NG: We are profitable in all our mature markets and profitability for us follows a predictable curve. For the longest time, Instacart had been in somewhere between 18 to 30 markets and we were conservative about expansion. Last year, we went from 30 to 190 markets and the reason 2017 was such a big expansion year is because in 2016, we were focused on profitability and, most importantly, having predictability around profitability. For example, what type of volume and density mix does it take to turn a market, in our language, from red to green on a profitability perspective? The improved predictability of profitability enabled us to add 160 markets last year. RL: What did you learn in the process? NG: Last year taught us about market dynamics. We learned the demand for our type of service in places like Buffalo, New York, or Evansville, Indiana, or Rockford, Illinois, on a per capita basis, is actually greater than the demand in places such as San Francisco, Chicago or D.C. Some of that’s competitive dynamics, and some of that’s just about having the opportunity to work with great retailers. What’s really interesting, and it’s neat to be part of this change, is that regardless of where she lives in the heartland of the country, this consumer seems to want this type of service, so we’re meeting her across the country today. I would like to say that we knew this, but we really didn’t, so it’s been fascinating to see, and very exciting to see that the model scales and that the demand scales across the heartland of the country. RL: Let’s back up to CPG revenue stream because one of the concerns CPG companies have about the migration to online shopping is that it just turns into a replenishment model. If I’m Brand A and a shopper always buys Brand B the opportunity to persuade someone to switch is greatly diminished compared to what it would be in the store. NG: The biggest dynamic with CPGs is the value of being first in the basket. In the old world, I actually started my career at Procter & Gamble as a brand manager, and they trained us incessantly on this idea of the first moment of truth. The first moment of truth used to be the shelf, and every time she was at the shelf, she had the opportunity to switch. In an online world, the dynamic is so different. The value of getting in her basket the first time is so high, because essentially, what we’re finding, is MARCH/APRIL 2018 Retail Leader.com


> SUPPLY CHAIN customers have a very much “set it and forget it” dynamic to most of their core grocery shopping. RL: Right, so how do CPGs break that cycle? NG: Some categories lend themselves to more thrill-seeking or trialing than others, of course, but generally, that first basket is very sticky. So the challenge for CPGs is how do you get discovered in this world where, once the customer makes a choice, she doesn’t want to rethink that choice because she’s using e-commerce to simplify her life? How do you allow her to discover your brand if you’re not already in that basket and do so in a way that isn’t intrusive to her journey? We offer tools for CPGs to do that, like offering the ability to stock up and save. Things like buy a quantity of a family of brands to receive a discount or free delivery have been among our most successful programs. Other examples include targeted coupons or generating awareness of promotions via what we call ‘the hero’ in aisle. Featured search is another area where if she is searching for cereal, what shows up first? It is a very real problem for CPGs, but it’s also a very real opportunity, because if you think of the return that comes from getting into the customer’s first basket, it’s tremendous. RL: When the acquisition of Unata was announced you guys talked about the combination with Instacart “enabling the future of online grocery shopping.” Elaborate on what that means.

Chris Bryson: The future of the grocery experience is a more convenient one and Instacart is part of what is enabling that future. Their value proposition of being able to get groceries to your door, sometimes as quickly as 60 minutes or less, is a game-changer that falls in line with the consumer focus on convenience. We are all so digitally dialed-in now, you can order your coffee ahead of time before you walk into Starbucks. Why can’t you do the same with your groceries? There are so many opportunities to make the current grocery experience more convenient, to save more time, to make it more personal, to make it easier for consumers to pick the right product based on their own personal goals. Anything that reduces clicks, that makes it easier for me to convert my inspiration into an actual product decision, that takes away the burden for me of having to do research, of having to spend too much time. It all comes back to convenience. RL: Some retailers view convenience as picking up at store, the click and collect model. What’s your view of click and collect versus home delivery or is it not an either or situation? CB: Many of our retailers provide both delivery and click and collect, and we’ve had the benefit of being able, courtesy of the loyalty programs that many of these retailers have, to also see what the adoption is. What we’ve noticed is that the shoppers who buy online, whether it’s delivery or click and collect, continue to come into the store almost every single week. Shoppers will pick the method of shopping that is most convenient for them at any given time based on context and circumstances. We recently surveyed 1,000 U.S. shoppers and confirmed there is a 24

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strong desire for both delivery and pickup although delivery has a slight edge. RL: What did the survey tell you about shoppers’ desire to engage with voice? CB: The data reinforced that shoppers value two way communication with personal shoppers. As Nilam knows, customers on Instacart get to know their personal shoppers, and there is two-way communication all the time around product preferences and substitution possibilities. Beyond that, Unata last fall integrated voice capabilities with our platform and we are beta testing with a few of our retailers. The idea is the second that moment of inspiration hits, that I realize I’m in my kitchen and I’ve run out of orange juice, or pasta, or whatever it might be, because that so often happens in the kitchen and I might have my hands full, I could very quickly vocalize to my smart speaker to add to the grocery list. RL: That takes convenience to a new level. CB: It becomes an effortless customer experience. Instead of having to pick up my phone and open up the app or write down on a piece of paper which I may forget to put in my pocket, voice is a much better customer experience because. It is effortless, it’s tracked and it’s saved. That’s one use case, but certainly there are a lot of other use cases that I could ask my smart speaker about. And by the way, it doesn’t need to be just the Google Home. It could be all kinds of other different chat bots. It could be something that runs on the Amazon Alexa, it could be Facebook Messenger, all those things are possible. What we are in beta with is the Google Home. I can ask to add an item to my order or is there any glutenfree beer on sale at my local grocer and have those results sent to my phone. The possibilities are incredibly endless. RL: So voice is the future for grocery? CB: We did ask those 1,000 shoppers in our survey whether they were embracing voice technology, and we found that one in five North American shoppers already owns a smart speaker and that about 30% of them had already used it to build their grocery shopping list. So not only is the device highly adopted, but the adoption toward the grocery experience is strong, and we expect that to grow. It comes back to the theme of convenience. If it is a more effortless customer experience, why wouldn’t you use it? RL


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Merger and acquisition activity in the consumer goods industry is poised to intensify in 2018 and beyond thanks to a combination of factors rarely seen. The global economy overall and the U.S. economy in particular are strong and set for continued growth. The favorable outlook combined with a strong labor market and signs of wage growth are feeding consumer confidence. CEOs and Board of Directors are generally optimistic as well, which enhances their confidence to make acquisitions. These factors alone would normally drive a high level of M&A activity, but what’s unique about the current landscape is the competitive dynamic between large, medium and small brands; shifting consumer preferences; and the overall structure of an industry operating under a new playbook for how brands and retailers go to market. These additional elements are fueling what was an already attractive climate for Consumer Packaged Goods (CPG) M&A activity. There are some well-documented trends leading to a dynamic and rapidly evolving consumer landscape. We have seen changes in consumer behavior as well as the advent of new technology that drive major shifts, impacting both CPG and food retailers. Generally speaking, today’s consumers are more brand agnostic than before and also seek healthier, better-for-you alternatives and immediate gratification. As a result, larger cap food brands have experienced volume weakness, with share losses coming

at the hands of smaller, ontrend and “better-for-you” brands with strong appeal to Millennials. Large cap food companies have countered with a Millennial push of their own by offering more products with a clean ingredient focus to bolster their competitive position. Meanwhile, branded manJon Levin, Managing Director ufacturers are also experienc- Consumer and Retail Mergers and ing increased competition Acquisitions, Credit Suisse from private label. Retailers such as Aldi, Walmart, Kroger and Dollar General are faced with margin challenges of their own, and are emphasizing private label products. This creates growth challenges for major national brands already coping with shifting consumer preferences. Furthermore, technology advances have created a consumer who demands unprecedented levels of transparency, convenience and new expectations of how to shop. Traditional food retailers in 2017 were impacted by weaker traffic, a deflationary environment, and intense price competition. Going forward, e-commerce in food retailing is expected to grow since it currently has the lowest penetration rate of any retail vertical. Retailers coping with online pressures are seeking better terms from CPG companies to

DIGITALLY DRIVEN: Five ways retailer and brand operations are affected 1

Direct to consumer offering

Over the next 5 years, eCommerce sales of food and beverages expected to grow at ~40% CAGR


Supply chain complexity and optimization

Digital commerce requires different disciplines


Increasing competition

The digital “shelf” is in many ways endless


New partnerships

Evolution in the way retailers and manufacturers interact


Ad spend allocation and marketing innovation

Digital marketing is proving invaluable

SOURCE: Credit Suisse research


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improve their competitiveness even as CPGs are investing in their own direct-to-consumer distribution capabilities. Retailers have also made significant investment in e-commerce capabilities and partnerships including Walmart’s acquisition of Jet.com, Albertsons’ acquisition of Plated, Target’s acquisition of Shipt, and H-E-B’s acquisition of delivery service provider Favor. Against this backdrop, M&A activity in the CPG world has been robust driven by two primary motivations: capturing growth from on trend, emerging brands and unlocking synergies. For example, companies such as Mars, Hershey, Campbell’s, Kellogg, and Conagra all paid premium multiples for smaller, high-growth assets. On the other hand, companies such as McCormick, Reckitt-Benckiser, and Campbell Soup Company pursued larger takeovers in more synergistic transactions. There are clearly some major drivers of M&A activity at work and the capacity to execute transactions is also high. Large CPG companies boast strong cash flow and balance sheets that have room to add additional leverage. There is also the prospect that favorable changes to the U.S. tax code, part of the Tax Cuts and Jobs Act signed into law in December 2017, could influence M&A activity since the reform promotes the repatriation of cash held overseas. As for the type of deals, much of the activity is expected to be driven by large cap companies hungry for growth looking to identify and acquire smaller brands. This puts smaller brands in an attractive position since it is somewhat of a seller’s market. Small, high-growth brands are highly sought after and have negotiating leverage to drive valuations vis-à-vis a competitive sales process. When used appropriately, small brands are able to maximize their value by creating competitive tension among large cap firms. In addition, mid cap and large cap mergers are expected in order for CPG companies to gain scale and realize synergies to propel earnings growth while topline remains more muted. Of course, determining the right valuation is as much art as it is science for companies with a limited sales history and promising outlook, that are looking to monetize. To maximize valuation, positioning is key, taking into consideration sales forecasts, earnings growth, potential synergies and capabilities of the acquiring firm. Smaller brands contemplating a sale, need to credibly explain their growth outlook and drivers behind the financial forecast model. For example, recent performance, especially in growth companies, is hugely important. Companies able to meet or beat expectations given to a buyer during the sale process and negotiation are typically able to command a high valuation and execute transactions more quickly. It is worth noting that there is asymmetric valuation risk if near-term growth targets are not achieved during the sale process. As for the science aspect of determining valuation, buyers are able to look at precedent deal activity and with M&A volume across emerging brands growing, this is providing

an increasingly relevant reference set. One variable that may impact the favorable M&A backdrop is rising interest rates as this can pressure the share prices of large cap CPG companies whose dividend yields are especially attractive to investors in a low rate environment. In U.S. public equity markets overall there has been some sector rotation out of higher dividend paying stocks as interest rates rise. Declining share prices make equity a less attractive acquisition currency. However, given large CPGs tend to generate very strong cash flows and have the ability to meaningfully increase leverage, equity is not expected to be a significant driver of the CPG’s ability to pay for a transaction. The global economy is enjoying broad-based strength leading to confidence among consumers and CEOs. When coupled with a new set of industry dynamics, M&A activity will maintain, but more likely, accelerate from current levels. RL

CPG DEAL SCORECARD Major deals done in past 12 months Date




Feb. 18

General Mills

Blue Buffalo

Jan. 18

Keurig Green Mountain Dr Pepper Snapple


Jan. 18


Nestle US Confection


Dec. 17


Unilever Spreads

Dec. 17


Snyder’s Lance


Dec. 17


Amplify Snack Brands


Dec. 17


Atrium Innovations


Oct. 17



Oct. 17


Columbus Meats


Oct. 17




Sep. 17

Conagra Brands



Sep. 17


Bob Evans Farms

Aug. 17


Back to Nature

Jul. 17


RB Foods

Jul. 17




Jun. 17




Apr. 17


AdvancePierre Foods


Apr. 17







$1.5B $163M $4.2B

SOURCE: Credit Suisse research

MARCH/APRIL 2018 Retail Leader.com





The Federal Trade Commission is experiencing a major shakeup this year, with several new commissioners slated for approval. The changing composition of the FTC has led many to believe that the newly-appointed commissioners will be less active than their predecessors – or at least less inclined to seek financial penalties for certain marketing tactics – but that they will still target advertising practices that deceive and harm consumers. Moreover, state regulators and consumers are heavily monitoring these trends, too. Therefore, to the extent that we see somewhat lighter enforcement from the FTC in the next few years, we may well see more aggressive enforcement activity at the state level. Either way, prudent retailers and brands need to monitor advertising and marketing law-related enforcement trends so they can steer away from potential legal challenges by state and federal regulators, consumers, and competitors. A review of enforcement trends and priorities identified by attorneys at the FTC and the Better Business Bureau’s National Advertising Division and other industry professionals, as well as recent activity in advertising and marketing law, highlight five key areas for retailers and brands to consider. They include:

Jason Howelll

Amanda Beane


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1. Disclose material connections with influencers and endorsers—and ensure that they disclose too. In September 2017, the FTC updated its Endorsement Guides FAQs to further address how to communicate information about meaningful, incentive-driven relationships between brands and endorsers, including by providing more guidance on both acceptable disclosure language and the location of disclosures. The agency emphasized that influencers and endorsers must disclose their incentive-driven relationship with a company in all advertising and promotional content, no matter the media or platform, and companies using influencers and endorsers are expected to develop policies and procedures consistent with the FTC’s emphasis on disclosure and effective compliance monitoring. Disclosures do not need to be complicated: For example, the FTC notes that if a person was given a free product to post about a brand in social media, then a simple disclosure such as “Company X gave me this product to try” should be sufficient. The FTC also reiterated that the disclosure responsibilities apply both to brands and their influencers, issuing over 90 warning letters to brands and influencers in April 2017 questioning whether they were truthfully and adequately disclosing their incentive-based relationships. Expect enforcement activity in this area to continue. 2. Ensure that terms and conditions comply with ROSCA and state automatic renewal laws. If you offer free trials that convert to a paid subscription service or other recurring billing services that automatically renew, then you must comply with the federal Restore Online Shopper’s Confidence Act (ROSCA) and related state laws that establish requirements for how, when, and what consumers must be told about Internet transactions, subscription plans, and free trials that convert to paying plans. In particular, California’s automatic renewal law has been a favorite of plaintiffs’ attorneys and was recently updated to expressly require businesses to disclose the price that the consumer will be charged after the free trial ends, among other changes. At a high level, clear and conspicuous disclosure and express consent to the terms are key. 3. Make sure your product is really “Made in USA.” The FTC will be watching for false “Made in USA” claims. According to the FTC, products advertised or labeled as “Made

in USA” without qualification must be “all or virtually all” made in the United States. The FTC takes the position that “all or virtually all” means that all significant materials and processing that go into the product must be of U.S. origin and that “the product should contain no—or negligible—foreign content.” Retailers should review whether they have sufficient support for unqualified or qualified “Made in USA” claims under federal law and state laws. California, for example, has very specific “Made in USA” compliance requirements. 4. Support your health claims. Any claim that a product is good for you, is healthier than competitor products, or will have a positive impact on your health is potentially subject to greater scrutiny by regulators, consumers, and plaintiffs’ attorneys. Such health and safety claims must be substantiated with competent and reliable scientific evidence, according to the FTC. The FTC is also focused on protecting vulnerable consumers, including older Americans, so carefully vet and qualify any health claims before launching your marketing campaign. 5. Don’t overstate your “green” claims. The FTC is keeping a close watch on claims that a product is “green,” “organic”

or “natural,” and it takes the position that broad, unqualified “eco-friendly” claims are not able to be substantiated. As such, advertising must not expressly or impliedly communicate more than the company can actually substantiate (e.g., stating that a product is “emission-free,” when, in fact, some emissions inevitably occur). Moreover, companies should ensure that any “green seals” or certifications are legitimate and that consumers are not misled into believing that a third party provided certification when the certification was actually bestowed by the company itself. Political administrations come and go and the composition of regulatory agencies, whether at the federal or state level, also change. While these moves can impact enforcement actions and penalties, marketing and advertising practices that misinform or deceive consumers are always looked upon unfavorably. RL Jason Howell and Amanda Beane are partners with Perkins Coie, LLP, a Seattle-based firm with more than 1,000 lawyers in 19 offices throughout the United States and Asia. Howell co-chairs Perkins Coie’s Advertising, Marketing & Promotions Practice and Beane specializes in matters relating to consumer protection, unfair competition and the ADA.

NEWLY STAFFED FTC IS 2018 WILD CARD The Federal Trade Commission should soon be near full strength, which could be a case of careful what you wish for with conditions ripe for increased merger and acquisition activity in the consumer goods industry. During the first year of Donald Trump’s presidency the five-member Commission operated with just two members, Acting Chairman Maureen Ohlhausen and Commissioner Terrell McSweeny. The 1,100 person agency also operated with four different heads of the Bureau of Competition. That situation prompted Acting Bureau of Competition Director Bruce Hoffman to title a speech he delivered to an antitrust group in early February, “It Only Takes Two to Tango.” “Examining the FTC’s record under Acting Chairman Ohlhausen and Commissioner McSweeny shows that two Commissioners have been quite enough to tango,” according to Hoffman. “Over the last year, we have been pursuing an aggressive, active enforcement approach, and I have no reason to believe that’s likely to change; if anything, it may accelerate.” The newly reconstituted Commission’s view will take shape soon as it related to the retail industry. Two deals in particular, CVS Health’s acquisition of Aetna and Albertson’s acquisition of Rite Aid, will offer insight into the Commission’s views. Before that can happen though the Senate needs to confirm the four new members. Hearings have been held and confirmations were pending in late February. Heading the Commission as Chairman is expected to be Joseph Simons with other commissioners including Noah Joshua Phillips, Christine Wilson and Rohit Chopra. Simons is currently a partner and co-chair of the Antitrust Group at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP. He was previously in charge of antitrust enforcement at the FTC, serving as Director of the Bureau of Competition from 2001 until 2003. Among his accomplishments, Simons was responsible for overseeing the re-invigoration of the FTC’s non-merger enforcement program. Under his leadership, the Bureau initiated over 100 investigations and produced more non-merger enforcement actions in one year than in any other year in the prior two decades or since, according to a statement from the White House announcing his appointment. Noah Joshua Phillips currently serves as Chief Counsel to Senator John Cornyn, the Republican Whip. In that role he has advised the Senator on issues including antitrust, constitutional law, consumer privacy, fraud and intellectual property. Christine S. Wilson, currently serves as Senior Vice President for Regulatory and International Affairs at Delta Airlines. She previously served as Chief of Staff to FTC Chairman Timothy Muris during the George W. Bush Administration. Rohit Chopra is currently a Senior Fellow at the Consumer Federation of America and will serve as the lone Democrat on the Commission, until a fifth Commissioner is appointed. From 2010-2015, Chopra also served as Assistant Director of the Consumer Financial Protection Bureau, an agency President Trump has frequently criticized. Prior to his government service, Chopra was an associate at McKinsey & Company.

MARCH/APRIL 2018 Retail Leader.com



9 Trends

YOUR Affecting their

Where Tomorrow’s Shoppers Are Heading > By Mike Troy




n image of babies scooting across the floor toward an unknown destination is the perfect metaphor for the state of the retail industry. A place where a new generation of consumers is moving quickly into an uncertain future that is exciting, confusing and scary for retailers and brands. Every aspect of the industry is expected to undergo a transformation more radical than anything that has come before and the change will occur in a compressed timeframe. Retailers and brands have to figure the future out fast, faster than consumers and competitors, to be relevant in a world reshaped by the forces of technology, lifestyle choices, new shopping behaviors and attitudes toward consumption. While much is uncertain, we took our best shot at picking nine of the most significant trends affecting future shoppers and the industry. The result is a blend of trends ranging from the well-established ones poised to intensify further to newer trends with the potential to accelerate quickly. All will affect tomorrow’s shoppers and the retailers and brands intent on serving them. We arrived at the list after countless conversations with industry thought leaders, executives at companies facilitating disruption and listening to presentations at industry conferences. We dissected consumer research, read whitepapers and received input from senior leaders within the Innovation Practice of Retail Leader’s parent company EnsembleIQ. Here’s a look at the future where shoppers are heading and what retailers and brands can expect.

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1 CONVERSATIONAL COMMERCE The desire to eliminate friction and increase shopper convenience has long influenced the retail industry’s evolution. Think shopping carts, conveyor belts at checkout and scanning. More recently, technology has eliminated pain points shoppers didn’t know they had until a new, better way emerged and behaviors changed forever. That is happening again with the dawn of voice-enabled commerce, or VEC. Smartphones are nearly ubiquitous and now the household penetration rate for in-home speakers with voice assistants is growing quickly. Advances in natural language processing have made voice interaction amazingly accurate with huge implications for retail. The most notable examples of course are Amazon’s Alexa, which is accessible through a range of devices including multiple Echo form factors and Google’s Home device powered by the Google Assistant. Amazon routinely reports that Alexa-enabled devices are among its top selling items and Google said it doubled device shipments in the fourth quarter and sold tens of millions of units with retail partners such as Best Buy, Target and Walmart experiencing strong performance. The company also said it saw great momentum around Google Assistant usage,

2 DEMOCRATIZATION OF RETAIL Retail is everywhere all the time and for future generations that will be even more the case. In a world where every image is theoretically shoppable with the scan of a smartphone or the utterance of a desire is quickly fulfilled, the only respite

now available on more than 400 million devices ranging from Google hardware to iPhones, tablets and watches. The household penetration rate for smart home speakers is projected to surpass 25% this year, according to Forrester, and within five years will top 65%. Users are becoming more and more comfortable with the devices, integrating them into life’s daily routines, including shopping. VEC eliminates the unnatural process of typing, tapping and swiping and will reign supreme as the next big advance in the elimination of friction. Shoppers will be able to articulate their needs for products or even services and thanks to ever-improving fulfillment capabilities can have select products at their home in less than an hour. It will be the new normal for a generation of shoppers coming of age in homes equipped with smart home devices. The act of making a paper list, visiting a physical store, selecting products from shelves and placing items on a belt to be scanned by another person will seem archaic. VEC represents a new frontier for retailers and brands who will need to develop shopper engagement strategies, operating models and strategic partnerships to find success. And conversational use cases aren’t just for shoppers. Technology providers such as Theatro have developed a conversational interface for store associates that replaces clunky handheld devices to simplify store operations and the delivery of customer service. Meanwhile, Symphony Retail Solutions offers a sort of Alexa for analytics capability known as CINDE (Conversational Insights and Decision Engine). If there is one qualifier for the future impact of voice it is around the potential of fully predictive models. IoT enabled products that reorder themselves or AI-driven replenishment models that fulfill products based on consumption patterns already exist. Generally, speaking VEC trumps such fully autonomous commerce initiatives because humans are irrational, impulsive and occasionally change their minds or want to try new things.

from shopping may be while sleeping. Even then, predictive algorithms will be churning to anticipate the slumbering consumer’s needs. The notion of always-on retail is a huge societal shift from the era when physical retail dominated and operating hours were restricted. Walmart changed that with the advent of 24-hour supercenters and now there is the Internet, which never sleeps. Beyond the ubiquity of retail and its accessibility, the democratization of commerce speaks to the phenomenon that everyone can be, and many are, retailers thanks to the elimination of traditional barriers to entry. Dramatic growth of third party platforms such as Amazon, Walmart, Etsy, eBay,

and others give budding entrepreneurs access to shoppers and a digital support infrastructure superior to some smaller and mid-size companies still wrestling with digital operations. Big tech companies such as Google and Facebook also facilitate commerce. It is becoming possible for literally everyone on the planet with access to inventory, fulfillment capabilities and smartphone to be a retailer. The notion of “going shopping,” which implies a time specific visit to a physical location, won’t resonate with future shoppers. They are shopping all the time, or have the ability to do so anyway, from millions of merchants worldwide whose “stores” are accessible via digital means. MARCH/APRIL 2018 Retail Leader.com




DIRECT TO CONSUMER These are strange times for retailers and consumer goods companies wrestling with new shopper behaviors and new types of competitors. Both are causing fundamental changes to product distribution methods and business practices of which one of the most significant is the growth of direct-to-consumer sales. If ever there were a case to illustrate that the consumer has all the power, the DTC movement is it, and it will be even more so in the future. Shoppers expect products to be available everywhere all the time and will seek out those able to satisfy their needs because they have the digital means to do so. The DTC shift happened because retailers and their trading partners clung to status quo methods of product distribution too long, which left an opening for new entrants unencumbered by legacy business practices such as selling direct to end users. Now the floodgates have opened and legacy brands large and small have abandoned outdated notions of channel conflict to embrace DTC efforts and dedicating senior leadership to the channel. They have no choice because consumers expect to be able to buy whatever, from whoever, whenever “they” choose, not when a legacy retailer and major CGP company allow them to do so based on pre-Internet business practices. Brands who underestimate the potential of DTC will be sorry because it promises to be the source of future growth and valuable insights. It will also change the dynamics of retailer and supplier conversations about new item launches, planogram resets, online availability and investments in retailer specific demand generation programs. DTC gives brands the ability to satisfy their most passionate fans who may desire products lacking the mass appeal traditionally required to warrant placement on store shelves. DTC also lets brands rethink product launch strategy since the viability of an item isn’t determined by the willingness of a critical mass of retailers to stock the product. The DTC space is ripe for startup activity too. Keep an eye on a company called INS, which recently raised $43 million to build a platform launching later this year that facilitates direct to consumers sales and is said to have pre-launch interest from big CPG.


Retail Leader.com MARCH/APRIL 2018



Many of the trends influencing consumers’ future behaviors relate to the when, where and how aspects of commerce. Things like product discovery, payment methods, store experience and fulfillment options. However, before shoppers make decisions in any of those functional areas they first make emotional judgments about why and with whom they will do business. This is where the role of the ethical enterprise and the modern articulation of the concept comes into play. Retailers and brands have always known that doing the right thing mattered. It’s why there are so many corporate social responsibility reports touting accomplishments in areas such as water conservation, diversity, working conditions, women and minority sourcing accomplishments and disaster response efforts. What it means to be an ethical enterprise has extended beyond such core areas with “mom and apple pie” appeal to unfamiliar new, emotionally charged territory where political and social justice influences are in play. Large companies are more accustomed to finding themselves in the crosshairs of vocal opponents who leverage digital tools to amplify their outrage. But a big shift has occurred where companies of all sizes are expected to take a stand on hot button issues in ways they never were before. It is a literal minefield filled with nuance because depending on the issue or individual involved it may not be enough to simply express outrage. The level of outrage needs to be proportional and timely or a company risks being perceived as slow to act or inauthentic, choosing to act only after public outcry. This phenomenon creates a new marketing dynamic for retailers and brands when it comes to advocacy and support of public policy where issues can be double edge swords. Most recently brands that provided benefits or price discounts to NRA members felt compelled to distance themselves from the organization after a school shooting in Florida, which caused a backlash among NRA members. This is an uncomfortable space for many mass market retailers who have long sought to avoid alienating any shopper segment. Retailers and brands are under tremendous pressure to change that mindset in an era when being an ethical enterprise means being more visible on social issues.


5 CYBER SECURITY It has been said there are two kinds of companies: those that have been hacked and those that don’t know they have been hacked. There is also a third type of company: one that has done extensive vulnerability testing of its own systems and employee training to thwart bad actors; engaged in contingency planning and allocated the financial resources to secure data, which has become every company’s most valuable asset; and allocated appropriate financial resources and elevated cyber security to a C-level position. Such measures are not extreme considering the technology world is in an arms race with sophisticated cyber criminals motivated by financial gain or simply the destruction of value. The consequences of failing to maintain the absolute highest levels of vigilance are enormous. Nothing destroys consumer trust or sends investors rushing to the exits faster than a data breach. Obviously, shoppers who lack trust in a retailer’s ability to protect their personal information and financial details will frequent other merchants, sales and profits will suffer and so will the stock price of publicly held companies. Just ask Target. The data breach it suffered in late 2013 dealt the company a staggering blow that resulted in huge fines, costly measures to restore confidence, a change in senior leadership

6 34

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and a host of new strategic initiatives to revive growth. Target lost valuable time in the process, which is something no company can afford when the market is moving fast and consumers have abundant choices. Cyber security has risen high enough as a risk factor that S&P working with Guidewire Software has integrated the firm’s risk analytics into S&P’s Global Ratings360. Cyber security is a growing component of business risk and financial losses that the firm, citing a report from the International Monetary Fund, said ranged from $250 billion to $1 trillion globally last year. The wide range suggests that no one really knows. The Securities and Exchange Commission at least wants investors to be more aware of digital security risks and recently updated guidance it first offered on the matter in 2011. Companies are now expected to develop policies that allow them to quickly assess cyber security risks, make public disclosures and prevent corporate insiders from trading shares if they have knowledge of a cyber incident. In addition to companies’ own efforts, the scope of the problem is such that major trade groups have entered the fray to facilitate information sharing. The National Retail Federation recently hired former cyber security think tank expert and U.S. Senate homeland security advisor Christian Beckner to serve as senior director of retail technology. In that capacity, Beckner will lead NRF’s cyber security efforts such as the NRF Retail Information Sharing and Analysis Organization and Threat Alert System, which gathers intelligence on cyber security threats targeting retailers and alerts companies to help them keep data secure. Likewise, the Retail Cyber Intelligence Sharing Center (RCISC), a group spun off from the Retail Industry Leaders Association (RILA) two years ago and led by former RILA executive Suzie Squier, is aggressively promoting the exchange of information. The group operates the Retail Information Sharing Analysis Center, which serves as a portal for the real time exchange of threat intelligence, strategic knowledge and tactics.

GLOBALIZATION There is more to globalization than product sourcing and trade agreements. Aside from economic considerations, globalization is taking on new meaning for retailers and brands. Shoppers’ expectations of retailers in an analog and more homogenous domestic marketplace were easier to satisfy and a retailer could define its competitive set based on a tight geography. In an increasingly digital and diverse nation, retailers have to meet shoppers’ expectations for a product assortment that resonates with their culture and community and competitors are no longer defined by proximity to a customer’s home. This is a major shift that will manifest itself in several key ways. For starters, globalization means shoppers’ expectations are as easily set by an overseas competitor as one down the street. In the United Kingdom, online grocery retailer Ocado operates automated warehouses filled with a swarm of 1,000 robots that can pick a 50-item order in less than five minutes and speed it on the way to a customer’s home. The company is working on autonomous delivery vehicles and robots that can climb stairs to

7 THE PRIVACY CONUNDRUM Customers want it all. Low prices on quality goods, clean stores, easy to navigate websites, fast and free shipping, no-questions-asked returns and organic and GMO free food, even if they don’t know what GMO means. Retailers are used to the shifting sands of customer expectations and know they must continually find ways to meet them. One way the bar is being raised again is shoppers’ demand for personalization, a vague objective that can take many forms but is most often associated with marketing communications and promotions based on purchase behavior. Shoppers have shown a willingness to surrender personal information if they derive value from doing so. The general assumption is that digital natives are less averse about sharing personal information while older folks tend to be more guarded and apprehensive when it comes to who knows how much. While all shopper segments appreciate and increasingly recognize the value of their personal information, they still value privacy and chafe at perceived abuses. Retailers have become their own worst enemy in this regard with some operators routinely abusing the trust online shoppers have placed in them with incessant email marketing tactics. That’s just one example, but there is growing concern, especially among consumer activists, that Americans don’t know what they don’t know regarding the extent to which their personal information is collected and used, and lengthy and cryptic privacy policies

don’t offer much clarity even to those who read them. Meanwhile, some shoppers at the forefront of technology have eagerly embraced facial recognition technology, which involves an entirely new layer of data sharing. All of these issues highlight why the European experience with the General Data Protection Regulation (GDPR) that goes into effect this May has everyone from compliance types to marketers and finance folks concerned. The regulations give individuals greater control over their personal data and imposes stiff penalties on companies who use information improperly. Normally European regulations aren’t a big deal for U.S. retailers, but this situation is different because GDPR has cross border implications for a digital world where information doesn’t respect boundaries. The sweeping new law applies to all companies that collect and process data belonging to European citizens and could serve as a model for U.S. regulation if privacy advocates have their way. According to the London-based Open Data Institute, GDPR creates a strange contradiction because customers are increasingly reluctant to share their data even though they have service expectations that can only be delivered by the collection and merging of data from multiple sources. Resolving the privacy conundrum while delivering against shoppers' heightened expectations represents a major operational, marketing and ethical challenge for retailers and brands.

deliver to the door. U.S. retailers are focused on rolling out click and collect service but why would anyone want that if they can have the order delivered? In China, Alibaba’s supermarket/restaurant concept Hema is blending physical and digital in unique ways and delivering orders in a tight geographic radius within 30 minutes. Hema stores are an app-driven exercise in transparency where customers shop with their phones to access information and receive product suggestions. The app can be used to make payment or they can use a facial recognition kiosk. Employees use the stores to pick and pack orders that are delivered to a trading area of less than two miles. The concept opened three years ago and there are currently about 30 Hema stores with plans for another 30 this year. The globalization phenomenon is also evident in the growth of cross border e-commerce, which is the fastest growing part of e-commerce. Cross border retail volumes worldwide are forecast to reach $900 billion by 2020, up from $300 billion in 2015, according to DHL. Online retailers are increasing their sales by as much as 15% on average simply by extending their offering to international customers who may be less price sensitive, according to the firm. A new breed of solution providers facilitate cross border trade to simplify the process for retailers and it is great for consumers who are able to order goods from anywhere in the world. For example, a company called PideloRapido gives customers in Latin America access to 160 million eBay listings in the U.S. and provides a door-to-door delivery service.

MARCH/APRIL 2018 Retail Leader.com



8 BRAND REDEFINED The rules of brand building have changed, creating huge implications for major consumer goods companies and their trading partners. And more change is on the way as key drivers intensify, altering the definition of brand for future generations of shoppers. The concept of brand has been tradi-


tionally about trust, quality and simplifying choice for shoppers. That combination isn’t as relevant as it once was. Brands have eroded their decision simplification advantage with prolific line extensions that made it harder for even loyal shoppers to choose among brand variations. As for quality, major national brands have seen that advantage diminish too thanks to steady improvement by retailers’ private brands regularly touted as good or better than branded equivalents. Consumer advocates often reinforce that view, suggesting that being a smart shopper means purchasing store brands. Trust remains an important driver of shopper behavior, but even that is no longer the exclusive domain of big brands. Consumers are just as likely to trust, experiment with and make repeat purchases of smaller brands perceived as innovative, authentic, specialized or cause related. No niche is too small for a brand to occupy in the digital age and social media platforms make it

easy to generate awareness with a target audience. Contrast that with traditional barriers to entry brands faced, such as securing an appointment with a buyer at a larger retailer, securing shelf space or spending millions on national campaigns to generate awareness. Now, consumers inclined to buy smaller or mid-tier brands are causing a major headwind to large CPG companies’ growth that shows no signs of dissipating. The emergence of these smaller challenger brands has given rise to the phrase “ankle-biters,” which tends to be used with derision as thought the small brands are a nuisance to larger established brands. One major impact of this new market dynamic has been a flurry of acquisition activity and large CPG companies look for a faster path to growth. M&A activity is forecast to continue at a rapid pace and thanks to the relative ease with which brands can be built there will be a full pipeline of targets from which to choose.

EXPERIENCE MATTERS There is a lot attention being paid to the concept of “store” experience. It relates mainly to the sensory experiences one has within retail environments where shoppers buy things. There is a school of thought that suggests retailers can negate the sales and traffic draining effects of e-commerce if their physical environments are sufficiently compelling. It certainly can’t hurt, but retailers face a different type of headwind to in store sales that has to do with experiences. One of the major trends affecting how shoppers behave in the future involves the reallocation of dollars from stuff, regardless of the store experience, to actual experiences. The mindset of a younger generation, according to best-selling author Doug Stephens, is that what they own is less impor-

tant than where they are, who they are with and what they are doing. This thinking is also resonating with older consumers who have spent a lifetime accumulating stuff and are in their downsizing and decluttering phase Stores have to be about more than just distributing products, or so goes the logic from those making the cases for experiential retail. The world is awash in stuff, so prospering as a retailer has to also involve a component that is about distributing experiences. Retailers have to help shoppers — if that is even the right word to use in an experiential future — be inspired and create memories. Some retailers do this already, but there is rampant experimentation underway with new technologies and service models as retailers look for ways to drive deeper levels of engagement that go beyond the basic transaction. RL

EDITOR’S NOTE: Have a point of view about where tomorrow’s shoppers are heading or comments on any of the trends listed here? Let us know by sending an email to Mtroy@EnsembleIQ.com and be sure to read the “What’s Next” column on Page 42, where Tanner Van Dusen, head of EnsembleIQ’s Innovation Practice, weighs in on the future. 36

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Want to get the CFO’s attention? Trying reducing energy consumption to save millions of dollars that drop straight to the bottom line. Want to really heighten interest? Also show how the measures taken to achieve those savings improved the store experience and contributed to sales growth. That’s what Walmart has been working on for the past 10 years with GE and for the past two and a half years with Current, powered by GE, an energy company within GE focused on LED solutions with networked sensors and software. Walmart has now installed more than 1.5 million LED fixtures across more than 6,000 stores, parking lots, distribution centers and corporate offices in 10 countries. Only recently did the companies disclose that the decade-long energy initiative has reduced lighting energy consumption and reduced costs by more than $100 million. “Energy is one of the key operating expenses that we can reduce while delivering system upgrades that improve the customer shopping experience,” according to Mark Vanderhelm, Walmart’s Vice President of Energy. “The ripple effect from these LED conversions throughout the business is truly staggering. We believe

that by continuing to reduce one of our biggest operating expenses, we’re supporting future innovation and delivering on our promise of everyday low prices.” The LED commercial lighting initiative between Walmart and GE started 10 Maryrose Sylvester, President years ago with refrigeration and CEO of Boston-based Current, powered by GE. display lighting and has grown to include parking lot and interior lighting. Many stores now also feature a Current technology known as Trigrain, which produces lighting that improves product visibility and enhances color vibrancy in areas like produce departments. The retailer is also moving aggressively to complete LED and controls retrofits in all of its U.S. distribution centers and pursuing a new initiative to replace all forms of overhead lighting with LED. In addition to avoiding energy costs – Walmart has reduced energy use per square foot by more than 12% since 2010 – the reductions feed the retailer’s other sustainability goals. The LED investments are part of Walmart’s science-

Walmart parking lots are a lot brighter thanks to a massive lighting project that saved millions and improved the customer experience.


Retail Leader.com MARCH/APRIL 2018

based emissions reduction plan aimed at meeting a goal to reduce emissions 18% by 2025 from 2015 levels. Plans to do so in its own operations rely on a combination of increased energy efficiency, sourcing of renewable energy and improvements in refrigeration systems and fleet efficiency. As for the $100 million figure the company disclosed earlier this year, that figure speaks to the company’s scale and potential for future reductions to be extracted from a massive physical presence. Walmart operated 11,718 locations worldwide at the end of its fiscal year on Jan. 31, and those stores encompass a GE’s proprietary Trigrain lighting technology in use at Walmart stores staggering 1,157,865,292 square feet, or the equivalent makes colors appear more vibrant whether in refrigerated coolers or of 41.5 square miles. To put that in perspective, the produce displays. enclosed selling space area that Walmart lights, heats and cools is almost double the land mass of Manwhere improved quality and presentation are regularly hattan’s 22.8 square miles. Small changes can have cited as success factors. a huge impact at a company Walmart’s size and the As Walmart moves forward with its energy reduc$100 million savings figure the company disclosed is tion goals it does so under the leadership of a uniquely likely conservative and is also only based on results qualified individual in Vanderhelm. He joined from 6,000 of the company’s stores. Walmart doesn’t Walmart in 2015 to lead the team supporting the publicly disclose estimates regarding potential future retailer’s global commitment to energy efficiency, sussavings and such figures are difficult to forecast. There tainability and renewable energy. He spent the prior are many variables that go into energy savings calcula11 years with Exelon Generation, an energy company tions, not the least of which is the price of energy focused on energy generation and development of from which historical energy savings are derived. The renewable sources such as gas, solar, biomass, storage same issue exists when it comes to calculating potenand hydro. Vanderhelm also holds a master’s degree tial future energy savings since assumptions would and doctorate in nuclear engineering from MIT where need to be made about the price of energy five or even he co-directed the Nuclear Power Operations’ Reactor 10 years into the future, a notoriously difficult task Technology Course for Utility Executives. given volatility of energy prices. In addition, Walmart About the time Vanderhelm joined Walmart, has to exercise restraint when calculating savings for veteran GE executive Maryrose Sylvester was tapped public consumption to avoid potential criticisms that to serve as president and CEO of the newly created might arise about greenwashing claims. organization Current, powered by GE. If pinpointing actual savings is chalThe new unit was billed at the time “The ripple lenging, attributing lighting improveas a first-of-its-kind startup within effect from these ments to sales results is even harder. the walls of GE focused on blending Intuitively, retailers know the comadvanced LED lighting with netLED conversions bination of well-lit parking lots and worked sensors and software to make superior product presentation improve throughout the commercial buildings and industrial shopper safety, overall perceptions of facilities more energy efficient and business is truly the store experience and contribute to productive. sales. While the magnitude of those Sylvester, a 30-year GE veteran staggering,” contributions is uncertain, Walmart’s who previously served as President sales results in the U.S. have shown Mark Vanderhelm, and CEO of GE Lighting, believes solid improvement during the periods Walmart’s efforts to improve effiWalmart Vice in which lighting upgrades have been ciency are setting a great example for made. Customer traffic and same store in the retail industry. President of Energy. others sales growth have risen for several years “We believe the global LED and in a row, improvements which are controls transformation is paving also attributable to operational improvements and the way for the next generation of smart retail, where increased employee wages. Walmart capped its fourth steady advancement toward new digital solutions will quarter of 2017 with an impressive 2.6% same store continue improving the shopping experience,” Sylvessales increase at U.S. stores driven by increased custer said. “Walmart is once again on the leading edge of tomer traffic and strength in fresh categories, an area progress.” RL MARCH/APRIL 2018 Retail Leader.com


Powered By

The RL ReseaRch RepoRT Expected delivery revenue change among food service operators who offer delivery 3%

3% Increase No Change


Decrease Will Not Offer


Type of delivery service used (Among those offering delivery) 13%

Delivering Growth The line between eating at and away from home is blurring, bringing fresh opportunities for retailers that sell food. Imagine consumers being able to receive full dinners from the prepared food section of grocery stores with just a few smartphone clicks. Thanks to the advent of technologies such as UberEATS, Grubhub, and even Facebook’s Order Food feature, foodservice operators have found a new stream of revenue opportunities — a new stream on which retailers can capitalize. In fact, more than half of restaurant operators have seen growth in their delivery business in the past year and expect it to continue in the coming year. Major players are taking notice: Amazon/Whole Foods recently announced a two-hour free delivery service for its Prime members. And Yum Brands purchased a $200 million stake in Grubhub.

In-house Third Party




Top 7 third party delivery services (Among those offering delivery)










Seamless yelp eat24


Amazon prime now

5% 0



retail leader.com March/april 2018




The Age of ImmedIAcy There’s plenty of room in the market for retail companies to begin or expand food delivery services — just 15 percent of retailers offer it and 10 percent are interested in the concept. Across the board (restaurants, on-site, etc.), roughly one in five operators offer delivery, driven by one-third of restaurants — showing that there’s ample room for the retail sector to get on board. However, the market may get crowded quick with 57 percent of operators participating in a recent Datassential survey indicating they plan to add delivery service within the year. STreAmlInIng delIvery vIA AlTernATIve plATformS While online, apps, social media and other types of ordering haven’t yet surpassed phone orders, they should not be ignored. When beginning or modifying a food delivery and pick-up service within in a retail setting, consider a website and mobile app option since nearly half of all foodservice operator offer those capabilities. While in-house delivery is outpacing today’s thirdparty delivery services — Grubhub, UberEATS, and others are showing notable progress. The services can provide an economical and speedier solution for retailers expanding or beginning a program. The Only 19 percent of restaurant operators are offering delivery via Grubhub and 13 percent for Uber Eats. However, 19 percent are interested in Grubhub and 25 percent for UberEATS. And while only 5 percent are using Amazon Prime Now, 23 percent are interested in it. RL




Transform the way you think about food at the newest event for the food retail, service and restaurant industries. Embrace the smart food evolution. Food that’s better for your health. Better for your customers. Better for your business. And engage in three days of education on industry-leading insights and access to revolutionary innovations that will help you make smart business decisions, cater to savvy shoppers and sustain momentum in the better-for-you food movement.

JUNE 25-27, 2018 | CHICAGO, IL

REGISTER TODAY | smartfoodexpo.org




Change has always been a part of the retail and consumer goods world. The industry would not look as it does today were it not for a century of innovating, testing, learning, iterating and expanding in a relentless quest to serve shoppers’ evolving needs and preferences. And yet, in today’s digital era, the sense of urgency feels particularly acute. There are near-daily declarations that organizations must “evolve or perish”. Leadership teams are under constant pressure to innovate and disrupt established retail paradigms before they themselves are disrupted. Shoppers are constantly being exposed to new, different, and presumably better ways of satisfying their needs. Attitudes, behaviors and expectations are evolving faster than organizations can measure. Barriers to entry are dwindling to non-existent. Startups are expending tremendous mental energy trying to dissect every aspect of the path to purchase, looking to isolate instances of friction to serve as a foundation for new business. New entrants spring to life with unprecedented speed. Investors and product development teams are already trying to predict the needs of Generation Alpha (babies born between 2010-2024). And, while the ancient Greek philosopher Heraklit was right when he said “the only constant is change”, that doesn’t mean it’s easy. Those with longer tenure in the retail world are striving to protect their competitive positioning — and, in some cases, struggling to remain relevant — in this dizzying climate. While these companies must seek breakthrough thinking and deepen their innovation pipelines, they cannot lose sight of the significant real-world challenges of monthly P&Ls, complex organizational structures, and the need to execute day-to-day operations. All can make it difficult for more established organizations to develop breakthrough thinking or even incremental improvements that can have a collectively large impact. Some have created innovation labs where talented individuals are cordoned off to identify new opportunities, develop solutions and be in the game of inventing the future ahead of competitors. But many of our clients and partners have told us this simply isn’t feasible, especially for mid-tier or small companies with greater limitations on financial and human capital. Even if these firms recognize the need to act with urgency, many quickly discover that the beginning stages of innovation are even trickier than imagined because there are so many starting points. And, once underway, the innovation journey becomes a bewildering maze where it is easy to become distracted by alluring new technologies and intriguing use cases. For example, the technology certainly exists for shoppers to place orders via


Retail Leader.com MARCH/ARPIL 2018

in-home speaker or mobile device and for these orders to be packed > By Tanner Van Dusen by a robot and delivered by an autonomous vehicle. But, determining actual consumer demand and designing profitable business models for the concept are altogether different stories. At EnsembleIQ, we frequently talk with companies who are challenged in their approach to innovation. Some have begun their journey but are worried about whether they are moving fast enough. Others have struggled to find the time, internal expertise or processes needed to guide and advance their internal innovation efforts. If you are one of these companies, you are not alone. Every company must find their own innovation path, but from our vantage point and interactions with literally thousands of companies, the most foundational aspect is to have a defined innovation framework. All organizations need some type of innovation support infrastructure to focus on the future and designated team members who can champion the cause of innovation to senior leadership. It doesn’t have to be a lab or a department with a clever name. It may be a single individual who is tasked with ensuring there is continual thought leadership around how to keep pace — or, more optimally, stay ahead of the curve. EnsembleIQ has a unique perspective on the rapidly evolving retail landscape and the state of industry innovation. As the parent company of Retail Leader, The Path to Purchase Institute, Progressive Grocer, Convenience Store News, Store Brands, Consumer Goods Technology, and Retail Information Systems among others, we have unmatched insight into who is doing what and, more importantly, who is doing it well. But we are not only watching. We are also applying these insights to our own company and have committed to finding new ways to help our customers stay abreast of trends, apply best-in-class innovation frameworks and advance their internal thought leadership. The result: the launch of a new EIQ Innovation Practice. By merging new market intelligence products with custom research, consulting and facilitation capabilities, we are helping clients find faster paths to disruption through deeper understanding of retail trends, innovation case studies, best-inclass strategic frameworks and collaborative discussions among innovation thought leaders. The digital age has made innovation both thrilling and daunting. We are committed to being a valuable partner in helping you find the right direction as you take your next step in the innovation journey. RL




Transform the way you think about food at the newest event for the food retail, service and restaurant industries. Embrace the smart food evolution. Food that’s better for your health. Better for your customers. Better for your business. And engage in three days of education on industry-leading insights and access to revolutionary innovations that will help you make smart business decisions, cater to savvy shoppers and sustain momentum in the better-for-you food movement.

JUNE 25-27, 2018 | CHICAGO, IL

REGISTER TODAY | smartfoodexpo.org


EVOLVE. ADAPT. SUCCEED. IDDBA. We are retailers, manufacturers, wholesalers, brokers, and distributors in an industry that is ever shifting. Our strength and vitality as a community will thrive with collaboration, innovation, and a relentless passion to shape the future of our industry. We will shape it together, successfully.

OUR INDUSTRY WILL RISE WITH FRESH CONCEPTS As the world grows more competitive, especially in the face of consolidation...now more than ever, a strong COMMUNITY that works together is the key to thriving.