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MEIJER’S DATADRIVEN JOURNEY 2019’S HOTTEST CONSUMER TREND INSIDE THE FRESH MARKET PRICING SMARTER WITH AI

Sam’s Club President and CEO

JOHN FURNER on Building a Warehouse Club for the Digital Age

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Retail Leader NOVEMBER/DECEMBER 2018 VOL. 8, NO. 7

President, Canadian Division & North American Grocery Jennifer Litterick jlitterick@ensembleiq.com Brand Director John Kenlon jkenlon@ensembleiq.com

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

6 EDITOR’S LETTER

ADVERTISING SALES & BUSINESS

Redefining what it means to be “a store.”

Senior Sales Manager Judy Hayes jhayes@ensembleiq.com 925-785-9665

8 GROWTH AND BUSINESS DEVELOPMENT

The Fresh Market lives up to its name.

10 MERCHANDISING AND MARKETING Cannabidiol is the next big thing in the health and wellness world.

12 HUMAN CAPITAL

Retailers embrace the gig economy with tech investments, automation and crowdsourced labor.

16 RETAIL PULSE

IRI looks at what’s next for wellness.

Senior Sales Manager Theresa Kossack tkossack@ensembleiq.com 214.226.6468

EVENTS Vice President, Events Michael Cronin mcronin@ensembleiq.com

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MARKETING

18 COVER STORY

Sam’s Club CEO John Furner talks tech, innovation and being a digital first warehouse club.

22 TECHNOLOGY AND INNOVATION

How technology driven innovation will have an even greater impact on the retail industry in 2019.

27 WHAT’S NEXT

A new era of healthcare has arrived and retail has a major role to play.

Brand Marketing Manager Carly Kilgore ckilgore@ensembleiq.com

AUDIENCE ENGAGEMENT Director of Audience Engagement Gail Reboletti greboletti@ensembleiq.com Audience Engagement Manager Shelly Patton spatton@ensembleiq.com

PROJECT MANAGEMENT/ PRODUCTION/ART Vice President, Production Derek Estey destey@ensembleiq.com Creative Director Colette Magliaro cmagliaro@ensembleiq.com Production Manager Jackie Batson jbatson@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 Financial Officer Richard Rivera President, Enterprise Solutions Terese Herbig Chief Digital Officer Joel Hughes Chief Innovation Officer Tanner Van Dusen Executive Vice President, Events & Conferences Ed Several

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letter from the

EDITOR

Redefining Stores The word “store” has outlived its usefulness given the ongoing transformation of the retail industry. I was pondering the future of physical retail as we begin 2019 in the wake of store closures, the continued rise of e-commerce and the impact of digital innovation on stores. But what exactly is a store, and more important, what will it be in five years or more. Gaining clarity on this issue is a big deal because of the lead times required to develop retail projects that have to operate in a world where technology can quickly change how humans behave. Let’s take a step back and examine the origins of the word store, which has a surprisingly large number of definitions. For much of history it was used as a verb and later became a noun when the forerunner of modern retail took shape centuries ago. The meaning of “store” was first recorded as, “a place where goods are kept for sale,” in 1721, according to Google. That definition has served the retail world well and remains core to how many companies operate today. However, it is one dimensional and dates to a pre-Industrial Revolution era. The retail industry’s structure has changed dramatically in the past 250 years and stores today serve a more expansive role compared to even 10 years ago. For example, stores are: A physical manifestation of a retailer’s brand. This may seem obvious, but stores have become a canvas on which a retailer conveys its brand attributes and value proposition through design elements, assortment, pricing and service levels. Nodes in increasingly intricate supply chains rather than a logistical end point. Stores are deeply intertwined in circular supply chains as their role has expanded to serve as fulfillment and reverse logistics centers. Laboratories to uncover consumer intent. Huge data streams generated by mobile device usage over store networks and video analyzed by artificial intelligence mean a retailer can know more about what a shopper will do before a shopper does. Entertainment and experience centers. Physical spaces function as more than destinations where shoppers tolerate the drudgery of replenishing consumables. The concept of store experience is one retailers of all types are attempting to bring to life in the context of their brand. If this is what stores are today, what about tomorrow? What should we call these spaces knowing that they are going to function in vastly different ways than mere repositories of merchandise? They will probably still be called stores, just like we call our hand held supercomputers smartphones, but the notion of what constitutes a store becomes more virtual. It’s why the most valuable retail real estate in the world isn’t in Manhattan, Tokyo or Hong Kong, but rather a tiny icon on a smartphone. A retailer’s app serves as the entryway to a world of possibilities related to content, product discovery and personal assistance. A shopper swiping across their smartphone screen, pondering which apps to open, isn’t that much different than a person driving down the street deciding which stores to venture inside. The app is the store and the phone on which it resides is like a shopping center. In such a world, the retail industry has to rethink its obsession with physical stores. Traditionally, a large number of store openings was seen as a good thing and closings were viewed as an indicator of weakness. Such broad generalizations aren’t as easy anymore because a legacy retailer proactively closing stores may being doing so for valid, forward-looking reasons to reposition its fleet while a retailer born online may open physical locations for entirely different reasons. Either way, new rules are in play regarding the size, density and function of stores, which could more aptly be described as customer engagement and fulfillment centers. It’s a lot easier to just say, “store,” even if future generations wonder what that is. Think of it like this. A digital native told by a parent to hang up the phone likely never ended a call by placing a handset in the cradle of a base unit. And so it is with retail stores. Future generations are already interacting with stores in very different ways than their parents. The rise of voice commerce, increased mobile shopping, subscription boxes, meal kits, autonomous deliveries — pick an innovation — will change the role of physical spaces. We may still call them stores in the future even though the definition developed 400 years ago isn’t relevant. RL MIKE TROY Editor-In-Chief mtroy@ensembleiq.com

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> GROWTH AND BUSINESS DEVELOPMENT

A Brand Promise Delivered

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THE FRESH MARKET LIVES UP TO THE VALUE PROPOSITION IMPLIED IN ITS NAME. > By Mike Troy Any retailer bold enough to declare itself, “The Fresh Market,” sets a high expectation among shoppers before they ever set foot in a store. And so it is with Greensboro, N.C.-based The Fresh Market, a chain founded in 1982, that over the past decade had veered from the lofty branding statement of its name. That’s not the case anymore, as evidenced by a new prototype in Charlotte, N.C., and the philosophy of President and Chief Executive Officer Larry Appel. “Our merchandising strategy is to be a fresh-focused specialty store,” Appel told Retail Leader. “We travel the globe ourselves and through our distributors to find unique items to create a treasure hunt environment. We’ve curated special products to discover and explore, which helps us accomplish our mission of inspiring guests to make every day eating extraordinary.” That strategy comes to life in numerous ways throughout the 21,000-sq.-ft. store, the company’s fifth in Charlotte, which is 5,000-sq.-ft. larger than the location it replaced. The additional space houses a larger assortment of products that Appel alternatively characterizes as unique, innovative and best-in-class. One of the signature departments is a new meals-made-easy section with an offering of chef-inspired entrées, sides and complete meals that are ready to cook or simply heat. The meals-made-easy assortment compliments an expansive deli department located in the center of the store that also provides a wide range of “what’s for dinner” options.

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The Fresh Market President and CEO Larry Appel, third from right, was among the retailer’s senior leaders on hand in Charlotte, N.C., for the opening of a new prototype.

The store features three times the variety of fresh produce compared to traditional grocery stores, according to Appel, and the products are cut in store. There are also prime-graded meats, fresh-caught seafood, imported and domestic cheeses and charcuterie, fresh baked items and desserts. The merchandising approach is why Appel defines the retailer as a “fresh specialty store.” “We are a curator, not a category manager. That is what fresh specialty means to us.” Appel said. The distinction, while subtle, is designed to differentiate The Fresh Market in an increasingly crowded field where natural and organic grocers and major food retailers are vying for the growing segment of shoppers who are time-starved and looking to eat cleaner, healthier, interesting food that requires little to no preparation. “One of the things that is going to differentiate us is you are going to want to come into the store because it is a treasure hunt and we will create an experience that people look forward to,” Appel said. The company has certainly done that with its newest location in Charlotte. The challenge, as is always the case with prototype stores, is rolling out those elements that generate the highest return to other locations in a cost effective manner. Appel believes the company can do that because much of the change relates to product and the approach to merchandising can be replicated in a less capital intensive way than new construction. “The top priority right now is being great at fresh, having unique special products throughout the store, and then having guest service that is as special as the products so when shoppers come in the store the experience is unique,” Appel said.


The company’s value proposition comes to life through an expanded offering of convenient meal solutions, left, and a compelling fresh presentation, below, including a massive jackfruit.

“We don’t want shopping to be a chore, we want it to be a joy.” If the company can deliver on that expectation more broadly it will have succeeded in more fully living up to The Fresh Market name and will be in a better position to let people know about the changes. “We are not putting the cart before the horse. We needed to build vision and value proposition and then you tell people about it,” Appel said. “The priority has been to get back to who we are so we can brag about it and people can tell their neighbors about it.” The other thing The Fresh Market needs to build is the type of omnichannel capabilities other food retailers have moved quickly to add in the past 18 months. Appel is aware the company needs to provide online ordering for in store pick up and home delivery and plans to introduce those capabilities in the fourth quarter. “We are going to be omnichannel and meet the guest on their terms, but the cornerstone of our business is going to be the unique experience we provide in our stores,” Appel said.

FROM LAWYER TO LEADER Appel joined The Fresh Market on Sept. 11, 2017 to fill a position previously held by Rick Anicetti who departed the company in 2017 after it was taken private by Apollo Management the prior year in a deal value at nearly $1.4 billion. Appel joined The Fresh Market from Skeeter Snacks where he served as CEO, but prior to that he held senior operations, legal and strategy roles at Winn-Dixie from 2002 to 2012. Prior to Winn-Dixie, Appel was senior vice president of legal at The Home Depot. Once at The Fresh Market, Appel moved to build a team of senior leaders whose backgrounds offer insight into how The Fresh Market plans to move forward. One of his first hires came in December 2017 when Mary Kellmanson joined as Chief Marketing Officer. She had worked with Appel at Skeeter Snacks as CMO and prior to that held a senior marketing roles at Winn Dixie and Wegmans Food Markets. In January 2018, Yvonne Cowser Yancy joined as Senior Vice President and Chief Human Resources Officers after serving as the top HR executive for the City of Atlanta.

In March, veteran fresh merchant Vic Savanello was named vice president of produce merchandising. He had spent the prior decade as senior director of produce and floral at Allegiance Retail Services and prior to that more than two decades in produce roles at Wakefern Food Corp. In April, Appel elevated Rich Durante to the role of Chief Merchandising Officer from his position as a regional EVP of merchandising. He had previously served as President and COO of AG Supermarket Holdings, operator of banners such as Kings Food Markets, Balducci’s Food Lover’s Market and Balducci’s On the Go Café. With a great team in place and a supportive private equity owner, Appel said shoppers across The Fresh Market’s network of roughly 170 stores are going to see a lot of cool stuff in the coming years. “Our first priority for capital is to deploy elements of (our Charlotte store) that are most successful to enhance the sales and productivity of the rest of the fleet,” Appel said. “This business was a turnaround so first we had to get back to our roots, execute consistently and look to enhance things from there. Our core systems are solid and we have a nice foundation to build from and resources to make investment over the next 24 months. We are extremely well-positioned.” RL NOVEMBER/DECEMBER 2018 Retail Leader.com

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> MERCHANDISING AND MARKETING

CBD: Three Letters Driving Triple-Digit Growth CALL IT A GOLD RUSH OR A GREEN RUSH, EITHER WAY, CANNABIDIOL (CBD) IS THE NEXT BIG THING IN THE HEALTH AND WELLNESS WORLD. >By Jessica Hochman

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CBD (or cannabidiol) is opening up a Because of SPINS’ proprietary partnerpromising new market within the health ships with the innovative retailers in and wellness industry. It’s one of several this channel, our data frequently delivcannabinoid compounds found in both ers the first glimpse of emerging trends cannabis and hemp, though CBD is not and soon-to-be-celebrated functional psychoactive (and so won’t get consumers ingredients. Following in the footsteps high). A growing body of research points of the wellness and specialty diet trends to the human endocannabinoid system’s that came before it (such as organics, support of essential functions, including plant-based, and gluten-free), CBD is inflammation, mood, sleep, and more. In a growing first in the natural channel, recent study from AT Kearney survey, 76% but often we see a natural incubation of respondents agreed or strongly agreed period followed by scaled growth in Jessica Hochman, Natural Insights and Innovation Research Manager, SPINS. that products containing or derived from mainstream channels over time. cannabis can offer wellness or therapeutic CANNABINOIDS CROSS CATEGORIES, benefits. Today’s consumers, with an affinity for self-care and BRANDS DIFFERENTIATE AT EXPO EAST a wealth of research available at their fingertips online, are CBD and cannabinoids already report sales in more than a actively seeking out CBD and cannabinoids, despite nuanced dozen product categories within SPINS data, and the prolific specifics of the ingredients’ legality according to different presence of these ingredients at industry events like Septemgovernment agencies and across state and federal jurisdictions. ber’s Natural Products Expo East points to continued expanAnd even with regulatory concerns surrounding the products, sion. Beyond the supplement formats (sublingual oils, soft brands and retailers are acting fast to deliver on this mounting gel capsules, etc.) you might expect, our researchers found consumer demand. CBD and hemp extracts in everything from caramels and Many are calling this moment a gold (or green) rush, and the chocolates to coffee beans; functional beverages, bars, and ambiguous terms of CBD’s legality add a Wild-West element bites; a broad array of body care products (lotions, lip balms, to the industry’s rapid growth. For more than 20 years, SPINS bath bombs, etc.), often paired with other botanicals; and pet data has tracked specific product characteristics driving sales at products, too. retail: our coding captures more than 600 functional ingrediFor as many categories as these versatile ingredients have ents with unique granularity, including newcomers like CBD already entered, consumers are pursuing cannabinoids for and other cannabinoids. Through this lens, we can see that, benefits across nearly as many health focuses: from mood even under the limitations of the current legal climate, products functions (calm, focus, stress and anxiety support) to imcontaining CBD and cannabinoids have grown an astonishing proved sleep to pain relief and muscle recovery from inflam384% in sales in traditional retail channels over the last year — mation. and it feels like it’s just the beginning. One early differentiator among the many purveyors of FROM INCUBATOR CHANNELS TO cannabinoid products at Expo East was whether an item uses SCALED SUCCESS an isolate of CBD or the full spectrum of cannabinoids that SPINS’ data also indicates that the CBD trend has tremendous can be extracted from hemp, touting a synergistic benefit untapped opportunity across the retail landscape. Today, 95 called the entourage effect. Methods of extraction, via chemipercent of sales volume for CBD and cannabinoids takes place cal solvent or carbon dioxide pressure or even lipid infusion in the natural channel, where so many trends first take root. from Functional Remedies, serve to further set the prod-

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ucts apart from one another. As with so many areas of the natural products industry, supply-chain differentiators such as Green Gorilla’s organic certification, Evo Hemp’s mission-driven sourcing (partnering with a grower on an American Indian reservation to drive revenue to disadvantaged populations), and Charlotte’s Web’s vertical integration also point to ways brands are already carving out a niche in a rapidly expanding market.

BRANDS BET BIG ON CBD CBD and cannabinoids are a relatively new trend, but it isn’t just start-ups bringing the ingredients to market. In fact, several heritage natural brands with considerable market share in body care or supplements (such as Barlean’s, Irwin Naturals, and ShiKai) have entered the segment early. These brands’ established reputations may lend the credibility some consumers need in order to try out the cannabinoid trend. While nascent brands may find a willing market and build their platforms on hemp and cannabis, serving young shopper demographics who are eager for experimental and leading-edge items, familiar natural brand names may be just what other more risk-averse shoppers need to encourage new product trial.

SETTING CBD STRATEGY With so much consumer interest, brands of all sizes, retailers, and investors all see significant opportunity in CBD. SPINS’ Principal of Brand Growth Solutions Perteet Spencer offers valuable perspectives on navigating this promising space, tailored to each group. “For brands, a solid foundational understanding of category and consumer dynamics is essential to considerations of expanding into the CBD space,” Spencer advises. “Who are your brand’s core consumers, and how would your proposed CBD-enhanced offering relate to their needs?” She also underscores the importance of a nuanced knowledge of the retail marketplace, particularly given the current regulatory landscape. “Brands who gain early traction won’t win with a ‘one-size-fits-all’ approach. Understanding regional market dynamics and identifying exactly how their products will fit into a particular retailer’s mix are both critical to a brand’s success.” “As for retailers,” Spencer added, “they need to develop tailored assortments based on the shopping behavior of their consumers. For retailers of every size, these fundamentals are the same: they need to know exactly where their shoppers are in their adoption of CBD products and which categories present room for growth on the leading edge.” For investors, Spencer says data-driven due diligence is crucial. “Investors are going to get pitch after pitch about the

potential in CBD, and at least that part of every pitch will be true: what needs to come next is factbased research and critical analysis of the brands currently in the space in order to size any forthcoming opportunity.”

WHAT’S NEXT Current regulations pose an initial hurdle Perteet Spencer, Principal, Brand for CBD and cannabi- Growth Solutions, SPINS. noid growth today, but it seems likely that the legislative climate will shift: already 31 states have legalized medical cannabis, with 10 making provisions for recreational use, and FDA approval of a cannabisderived epilepsy treatment has prompted the DEA to move this drug to its lowest class of controlled substances. All the while, CBD continues to show explosive growth in the natural channel, with no signs of slowing. As restrictions loosen, the CBD gold rush will provide expansive opportunities for the brands, retailers, and investors who enter the space with the right data and consumer understanding to mitigate risk and maximize the value they deliver in the market. RL Jessica Hochman serves as Natural Insights and Innovation Research Manager at SPINS. Perteet Spencer is a Principal with SPIN’s Brand Growth Solutions. SPINS is a provider of retail consumer insights, analytics reporting and consulting services for the natural, organic and specialty products industry. NOVEMBER/DECEMBER 2018 Retail Leader.com

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> HUMAN CAPITAL

Retail ‘GIGIFIED’ RETAILERS HAVE EMBRACED THE GIG ECONOMY BY INVESTING IN TECHNOLOGY, AUTOMATING TASKS AND RELYING ON CROWDSOURCED LABOR. THE RESULT IS A NEW LABOR DYNAMIC AND PRODUCTIVITY IMPERATIVE FOR RETAILERS COPING WITH INCREASED WAGES. > By Gina Acosta

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If there was any uncertainty about the upward trajectory of Target acquisition of Shipt and Amazon buying Whole Foods automation and the gig economy in the retail industry, one need Market,” Ryu said. only look at what Amazon just did in San Francisco. While Target works to expand Shipt all over the U.S., Kroger The company opened its fifth Amazon Go store a few weeks has gigified, or outsourced, its grocery delivery to other thirdago (the third Amazon Go location outside of the company’s party services, such as Instacart, and their shoppers and cars. hometown of Seattle), outfitted with mostly automated and The grocery chain has also just partnered with Nuro to launch freelance labor: sensors and artificial intelligence have replaced in Arizona a test of driverless grocery delivery, which it says it cashiers, and gig workers will be delivering packages and grocerplans to expand quickly. ies to customers. “You will be the go-to-person on the ground as we launch The San Francisco opening is a curtain warmer to Amazon’s our first satellite office/city,” Nuro says in a help wanted ad on its blockbuster stated plans to open at least 3,000 more Amazon Go website. “The City Manager will develop and oversee day-to-day stores across the country. Of course the declaration has rattled operations of one of our first major delivery services. You will be the retail industry already reeling from disruptive forces, and it Nuro’s go-to-leader on the ground as we launch new partnerprompted an outcry from union activists worried ships and will help take our delivery service from 0 “More and about job losses. But what Amazon actually just to 1 in the first city with our first partners. This is a did is solve a big problem for retailers: It figured high impact role which demands great breadth and more we are out how to greatly reduce the need to find cheap depth of team management, customer obsession, and labor in the face of wage hikes and a tightening seeing retailers determined execution.” labor market. Kroger is also installing robots in warehouses start to adopt The Amazon news is a fresh example of the with U.K. grocery partner Ocado. The supermarket new labor dynamic in the retail industry, as comoperator reached a deal in May to partner with and and roll out a panies race to follow the lead of Amazon, who increase its investment in Ocado for an undisclosed seemingly knew early on that it could leverage gig mobile type amount. Kroger told Reuters in September that it’s on-demand workers and solve the (escalating) “making good progress” on selecting sites with Ocado of employment for three automated distribution centers around the human capital dilemma in retail by investing in technology, automating some tasks and outU.S. The companies plan to build 20 automated model.” sourcing others. warehouse facilities in the first three years of the deal. Kroger is Ocado’s exclusive U.S. partner. —Keith Ryu, CEO and co-founder of Fountain OUTSOURCE 2.0 Meanwhile Walmart has been putting out all the Over the past few months, retailers such as stops on tech and gig-type initiatives, most recently Kroger, Walmart and Target have moved quickly to adapt to outsourcing furniture and electronics assembly to Handy, an the new labor market and hinted at a future that relies more on online marketplace for home services. checkout via app and less on humans, more on freelance grocery “Our program with Handy enables us to eliminate the delivery and less on shopping from shelves. friction of installation and assembly, and offer customers a Keith Ryu, the CEO and co-founder of Fountain, a hiring convenient, delightful experience from start to finish. We know and onboarding platform for freelance workers, says that the Handy’s services are going to be a big help to our busy customburgeoning gig economy is perfectly poised to fill retail job gaps. ers,” said Daniel Eckert, senior vice president, Walmart Services Ryu’s company helps retailers such as Safeway and Shipt fill jobs and Digital Acceleration, Walmart U.S. with gig workers. In June, Amazon announced a new program called Amazon “More and more we are seeing retailers start to adopt and Delivery Service Partners to address growing last-mile chalroll out a gig mobile type of employment model. That trend lenges. None of the new Delivery Service Partners nor their staff has been really increasing over the past year, especially after the will be employed by the company. An initial $10,000 will go to

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Instacart contracts with thousands of independent personal shoppers, who work in dozens of cities around the country.

helping them start an independent business that has to begin with at least five delivery vans and ramp up to 20 vans over an undisclosed period of time. People have to apply at logistics. amazon.com and be approved by Amazon. “We have great partners in our traditional carriers and it’s exciting to continue to see the logistics industry grow,” said Dave Clark, Amazon’s senior vice president of worldwide operations. “Customer demand is higher than ever and we have a need to build more capacity. As we evaluated how to support our growth, we went back to our roots to share the opportunity with small-and-medium-sized businesses. We are going to empower new, small businesses to form in order to take advantage of the growing opportunity in e-commerce package delivery.”

THE NEW WORKFORCE Yet relying more on automation and gig economy workers isn’t a new cost savings method for retailers. In fact, retailers have been leveraging part-time, contracted labor to fulfill short-term and seasonal jobs (gigs) for years. But what’s different is that today’s workers are increasingly seeking more flexible, non-traditional jobs. And thanks to technology, it’s easier than ever for them to find these jobs, and for retailers to fill these jobs — a win-win in an ever-tightening labor market. In fact, as the on-demand economy evolves, retailers may find that a smaller, better-compensated core of flex employees are happier in their jobs and perform better. Not only does the gig economy provide flexibility to gig workers, but it also offers significant flexibility to organizations, especially those in the

retail industry. As more retailers embrace pop-up shops and other innovative projects, for example, gig workers are a great fit for those kinds of jobs and in high demand. So who are these workers and where do they live? In a new report released in September, the JPMorgan Chase Institute, a unit of the global bank, found that among 23 states and 26 cities, Nevada and San Francisco had the highest “online platform economy worker” participation rates, with roughly 2.8 percent of families generating platform earnings in March of this year. The non-employed and men were more likely than the employed and women to participate on transportation platform gigs, in which drivers transport people or goods (such as in grocery delivery). One thing is for sure: The popularity of gig work shows no signs of slowing down. A leading annual report on the gig economy, the State of Independence in America, paints another picture of the 42 million Americans who work as independent professionals, contractors, consultants, freelancers, side giggers and more. The eighth iteration of the report shows that even amid record low unemployment and the strongest jobs market in decades, independent work remains a viable and desirable career path for many Americans. More than 41 million people, representing 31 percent of the private U.S. workforce, were working independently as of 2017, according to MBO Partners. The group includes everyone from Instacart shoppers to Lyft drivers to the in-store demonstrators at the grocery store. The 2018 study also showed how four key trends emerged, each of which mirrors trends in the overall economy. NOVEMBER/DECEMBER 2018 Retail Leader.com

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> HUMAN CAPITAL

Experienced Shipt shoppers can earn anywhere from $16 to $22 an hour. And with tips they can earn even more.

Traditional jobs aren’t going away. According to the Bureau of Labor Statistics, the U.S. economy has added payroll jobs for 94 straight months, the unemployment rate is 3.9 percent, and there are 6.7 million open jobs. Full-time independence continues to be a viable and attractive option for many workers, especially for those with indemand skills. Companies are growing more comfortable working with independents, utilizing their skills in strategic positions, and paying them more. The need for and interest in part-time independent work continues to grow. Economic pressures and the continued growth of platforms and technology are contributors to this uptick in interest and size. The new norm is now more likely to be a mix of traditional and independent experience throughout one’s lifespan. An individual’s career path may include working at a payroll job, working as a Full-Time Independent, and having a side gig while employed at a payroll job. It’s not necessarily an either or choice. And many of those Americans working gig jobs are working in retail. Virginia-based job site Snag, the largest platform for freelance work in the U.S., connects workers with open shifts at various employers, such as restaurants, hotels and retailers. Snag connects more than 60 million active job seekers with employment opportunities at 300,000 employer locations in the U.S. and Canada. In 2017, Snag launched Snag Work, an on-demand platform that instantly connects hourly workers with available shifts across a variety of employers and locations. More than anything, though, Snag fills a lot of retail positions. According to Snag CEO Fabio Rosati, more than 5 million workers are hired each year via Snag, representing approximate14

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ly one out of every four restaurant, retail and hospitality hires made in the U.S. Fountain CEO Ryu says a lot of retailers are realizing that while filling jobs with gig workers has certain benefits, it also comes with hiring headaches. “There are a lot of challenges with the hourly workforce that don’t exist when you are hiring regular employees,” Ryu said. “About 90% of hourly, gig-type candidates don’t have resumes. About 50% don’t show up for interviews. Since 2015 we have helped Shipt enable a lot of their growth. What they really needed was a quick and easy way to bring on a large workforce to be able to launch into new markets really quickly.” Shipt is now delivering groceries to nearly 70 million households in 200 markets across the country. “Safeway is also rolling out same-day delivery across its markets as well. And so with the increased competition for these types of workers what’s really important for retailers is that within 24 hours of a candidate applying is getting in contact with them and bringing them in for an interview. Candidates are really driving the process at this time.”

MORE HIRING HURDLES? The rise in retail gig work comes as state and local leaders are trying to regulate and turn many of these types of jobs into regular employment. In April, the California Supreme Court handed down a ruling that could make it harder for companies such as Shipt and Roadie to claim their workers are independent contractors under that state’s wage laws. The court ruling applies only to California, but companies worry that, along with blowing up their operations in the nation’s most populous state, it could be a harbinger of things to come elsewhere. Over the months since, the leaders of some last-mile companies such as Instacart and Postmates have been lobbying state officials. The companies are pushing to neutralize the ruling either through legislation or through executive action by the governor — moves that would have implications across the country for retail, other sectors and their workers. “The magnitude of this issue requires urgent leadership,” nine companies wrote in a July 23 letter obtained by Bloomberg, which warns of the ruling “stifling innovation and threatening the livelihoods of millions of working Californians” and says that without political intervention it will “decimate businesses.” The letter was sent on behalf of Uber, Lyft, Instacart, DoorDash, Postmates, TaskRabbit, Square, Total System Services and Handy. It was addressed to the governor’s secretary of labor and cabinet secretary. The U.S. Chamber of Commerce has also expressed concern over the regulation of gig workers and is already lobbying state and federal officials on behalf of its member companies. Yet despite any legal challenges, the speed at which modern retail is evolving means that companies can no longer rely on traditional labor. And gig-based retail jobs will only grow as retailers and workers further embrace technology. Retailers need to understand the demands of today’s labor dynamics and create on-demand workforce strategies that will help them build the retail environment of the future. RL


SAVE THE DATE

Where leaders collaborate to meet the challenges of the evolving retail landscape and honor the best of the best at the Shopper Marketing Celebration.

May 15-17, 2019 Fort Lauderdale, FL. Path2PurchaseSummit.com

An ofďŹ cial event of:

Produced by:


RETAIL PULSE

the heartbeat of the marketplace

A Focus on Self

Consumers today commit to self-care, spurring huge opportunities in CPG and at retail.

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oday’s culture includes a near obsession with the goal of getting and staying healthy. This powerful trend is reverberating across CPG channels and aisles in the form of new buying and consumption habits. As product development and marketing teams have responded, the competitive marketplace has profoundly changed. This ongoing redefinition of the competitive set in self-care will accelerate with the rapidly changing demographic landscape. The pace of change is frenetic and shows no signs of ebbing — retailers and manufacturers must keep up or risk missing tremendous growth opportunities.

and wellness for themselves and their families. A focus on staying healthy and avoiding the need for medical care is not new, but today consumers have a wealth of information at their fingertips and a nearly endless array of strategies for getting well and staying well. The CPG industry is central to many of these strategies. Self-care has become a disruptive consumer macro trend that is rippling across the industry. CPG brands and retailers must understand how AMRUTA GUPTA, principal and this trend is impacting their own portfolios and healthcare leader, IRI Consumer channels, as well as those of competitors. & Shopper Marketing By having a clear understanding of the evolving self-care marketplace and how different segments of consumers view and approach self-care, CPG retailers and manufacturers can protect and grow their share of this valuable self-care marketspace. WHAT DRIVES THE SELF-CARE COMMITMENT? Ever-growing healthcare costs have forced Americans to take charge of their own health and wellness, and the strateCATEGORY LINES ARE UNCLEAR gies adopted are many, varied, multifaceted and extremely Through the lens of the consumer, who seeks broader solutions individualized. Consumers have come to realize that if to achieve their health and wellness goals, a marketer can underthey tackle health issues as they arise, as well as building in stand shoppers’ intense desires to solve and prevent problems. preventative measures with overall healthier lifestyles, they Consumers are taking a much more holistic approach to can potentially lessen the likelihood for managed care. As their health, catalyzing a blurring of category lines across a result, consumers are taking control and looking across the CPG industry. This is self-care. As consumers look aisles and stores for a wide variety of products and solutions, across CPG aisles for solutions to their many, varied and creating a behemoth $450-billion opportunity. very individualized needs, marketers and retailers must By definition, self-care includes all decisions people keep pace. Maximizing the self-care opportunity requires make or activities they participate in to ensure health brands and retailers to think outside of traditional and narrowly defined categories and reframe strategic mindsets to understand how each category is interacting within this expanded, benefit-based, solution-oriented marketplace. It is imperative for retailers and manufacturers to understand that locking self-care into traditional spaces — Retailers must think outside of food, beverage, consumer healthcare products, personal traditional and narrowly defined care, etc. — will not deliver the holistic, broad solution self-care categories and reframe shoppers are looking for. Consumers want probiotics, strategic mindsets to understand for example, but they are not locked into the dairy sechow categories interact within tion featuring yogurt. Rather, they seek foods, beverages, an expanded, benefit-based, supplements and any other products that may have the solution-oriented marketplace. ability to deliver on their need.

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Data & Insight Provided By

KEYS TO UNDERSTANDING SEGMENTATION IN SELF-CARE

To help CPG brands and retailers understand the evolving and complex self-care marketplace and develop effective, personalized products and marketing campaigns, IRI has developed an extensive self-care segmentation. This comprehensive segmentation illuminates market opportunity across all CPG categories. Tapping into these opportunities, though, requires embracing the individuality that is a hallmark of self-care. The IRI Self-Care Segmentation clearly illustrates the myriad approaches to health and wellness that exist in today’s marketplace. It features eight distinct segment profiles,

Self-Care By the Numbers

75%

of consumers focus on good oral hygiene

51%

of consumers use nutritional supplements daily

44%

eat food that contains wholesome ingredients

35%

of consumers take over-the-counter medications occasionally

35%

eat a diet that is rich in fruit and vegetables

29%

avoid artificial sweeteners

28% avoid processed foods

Source: IRI Self-Care Study 2018

25%

of consumers use natural personal care/ hygiene products— 33% among young millennials

19%

of consumers use natural products to disinfect their homes

14%

choose foods that are non-GMO

Self-Care Segmentation Doctor, Doctor! 10%

Proactive Naturalists 14%

Advice Seekers 18%

Active Health Managers 5%

Awakened & Dedicated 8%

Unconcerned Realists 11%

Preventive Moderates 13% Healthy Passives 22%

offering a multidimensional view of consumers and shoppers, defined by key attitudes and behaviors in this space. Identifying and deeply understanding the attitudes and behaviors of high-value, high-opportunity shoppers is the first step in leveraging the self-care trend to drive growth. Without activation, though, the sales needle will not move. By connecting attitudes and behaviors with actual purchase behavior, marketers can develop and implement marketing programs that truly influence the path to purchase for their most important shoppers. To bring this lens to life, IRI has linked the IRI Self-Care Segmentation to actual purchase behavior mined from a dataset of 350 million retailer shopper loyalty cards, enabling marketers and retailers to customize programs and activate against their most valuable consumer or shopper group. Today’s shopper demands personalization. Activating against a shopper’s health and wellness needs and wants through individualized and relevant messaging and solutions is critical. Consequently, it is imperative for retailers to granularly understand their consumers and shoppers and deliver against their needs and wants — whenever, wherever and however they wish to fulfill them. This is the strategy that will give a retailer a piece of this valuable self-care pie as consumers continue to focus on — and invest in — something extremely valuable: themselves. RL NOVEMBER/DECEMBER 2018 Retail Leader.com

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> COVER STORY

Building the Next-Gen Sam’s Club EXCITING THINGS ARE HAPPENING AT SAM’S CLUB, WHERE A NEW STANDARD OF INNOVATION IS BEING SET UNDER THE LEADERSHIP OF PRESIDENT AND CEO JOHN FURNER. > By Mike Troy

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Lots of kids in high school and college join bands, but few become CEOs of multibillion dollar companies. John Furner proved to be an exception, in part because skills he learned as a guitarist in the 1980s translate well to the retail world and his current role as President and CEO of Sam’s Club. “I was okay,” Furner says when asked if he was a good guitar player. The groups he was part of played genres such as rock, metal and alternative and would show up to gigs never knowing what type of music would resonate with the audience. “We figured out our original stuff wasn’t that good, no one liked it except us, so we learned to play to the audience,” Furner said. “We could play 60 or 70 songs in three or four genres. When we played a song that got people to stand up we knew that was the genre we were going with that night.” In addition to giving an audience what they wanted, being part

Sam’s Club President and CEO John Furner has the retailer on an innovation path to make Sam’s a place where his digitally-savvy kids will want to shop and work.

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of multiple bands taught Furner lessons about organizational dynamics and conflict resolution that have proven useful during a career at Walmart and Sam’s Club that spans two decades. “Being in a band taught me how to how to compromise and be part of a team. The band was the first time I had to deal with small group politics,” Furner said. “There was a lot of emotion because someone would want to play a song a certain way or have a solo.” Furner long ago traded musical genres and playlists for product categories and items and today leads a $59.2 billion retailer where there are plenty of strong personalities with points of view about how best to serve members and grow sales. At 44, Furner is the youngest of nine executive officers listed in parent company Walmart’s annual report, and he’s intent on moving quickly to ensure Sam’s Club remains relevant with future generations of shoppers, whenever and however they choose to engage with the brand. He became CEO on Feb. 1, 2017, after previously serving as Sam’s EVP of merchandising and prior to that spending nearly three years in Walmart’s international division as EVP of merchandising for Walmart China. “I was fortunate to spend three years in China,” Furner said. So was Sam’s Club, because during Furner’s tenure there he was exposed to a pace of innovation unrivaled anywhere in the world. Unconstrained by legacy systems, Chinese companies and consumers leapfrogged ahead to a world where mobile dominates all aspects of commerce and communications and has made the pace of change in the U.S. appear slow. Not to be outdone, Sam’s has raised the bar on innovation with its recently opened 32,000-sq.ft. concept called Sam’s Club Now in Dallas that took only three months to develop. “We opened Now as a beta lab for the technology team. It was more about that than it was about creating a new format,” Furner said. “What happens in our larger buildings is in order to do something with technology you have to build it at scale even if you are only going to use it in one place.” That’s a slower process than doing something on a smaller scale that can be used in a controlled environment to develop applications and technologies that run independently from core systems. For example, the app running at the recently opened Now club has features built into it that aren’t in the core app, but if they work can be quickly added. “We wanted people to be able to interface with new technolo-


Innovation lives at the recently opened Sam’s Club Now prototype in Dallas. The mobile-first club is an incubator for digitally-enabled navigation, augmented reality and member service innovations.

gies and we are taking a risk knowing that some of them may not work,” Furner said. “It’s okay to fail fast. What’s not okay is to just keep failing at the same thing over and over again.” Directionally speaking, it is clear to see that some of the features being developed at Now are destined for prime time because they fit well with the low operating cost model of the warehouse club. For example, the Now club employs a different labor model, even though the building has about the same number of people per square foot as a typical 135,000-sq.-ft. building. The big difference is the tasks being performed by workers in a club that is only shoppable by using the feature rich Sam’s app. For example, the checkout process is virtually frictionless because members use the Scan & Go feature of the app, developed two years ago, which enables them to skip the traditional checkout and pay by having a code scanned as they leave the building because they have already scanned items that were placed in their cart. “We are trying to make it as self-serve as possible with assistance when needed,” Furner said. “Everyone except for one person works on the floor so we have more people facing our members. There is a job called the member host, which is different than the cashier, because you are not waiting for a member to walk up with a cart, but instead intercepting them up front to make sure they are set up with the app.” Furner likens it to a concierge service that teaches members how to shop in what is truly a digital first warehouse club replete

with technology features that enable some old school tactics such as cross merchandising and wayfinding. The latter is important because clubs aren’t heavily staffed and have minimal signing so the most frequent question employees are asked is where a product is located. The solution is voice navigation via the Sam’s app that functions like Google Maps in a building. “Conceptually, we know we want to do it. What we don’t know yet is how we do it at scale,” Furner said, noting that the technology required to execute navigation in Now would be too expensive to roll out. “We overbuild the proof of concept and then from there we let the really smart people who are running it and innovating with it figure it out.” Another thing the really smart people are figuring out is the role augmented reality can play in the shopping experience, to provide content and help grow sales while facilitating the treasure hunt experience that is central to the warehouse club merchandising model. For example, at the Now location, Furner explained a member using the navigation feature could see things on their phone that don’t exist on the shelf. “You may be looking at almond milk on the counter while something appears to touch on the screen to show you how to use almond milk to make a fruit smoothie,” Furner said.

FOSTERING INNOVATION While Furner’s time in China exposed him to rapid innovation, it also helps to have four children under the age of 20 who are early adopters of technology and serve as an ever present focus group regarding what’s next. Furner tells a story about a question one of his kids asked after hearing country singer Travis Tritt’s hit song from 1991 with the hook, “here’s a quarter, call someone who cares.” The logical question asked by one of his twin daughters who had never used a pay phone was, “Why do you need a quarter? Why don’t you just use your cell phone?” “Kids are the best window to consumer insights, the way they think and work,” Furner said. They also helped shaped the redesign of Sam’s Club’s home office in Bentonville to foster a culture of innovation and collaboration. The retailer created an open floor plan with cross functional teams grouped by merchandise classification. Open floor plans aren’t always popular with employees, but at Sam’s the design is NOVEMBER/DECEMBER 2018 Retail Leader.com

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> COVER STORY spacious enough to allow for a degree of privacy and small meeting rooms are everywhere when privacy is required. “The overall premise was to make it feel like a level playing field for everyone. We have more of a level structure than we have ever had and there are no reserved parking spaces for the executive team,” Furner said. “As we were designing the space, I kept thinking in the back of my mind ‘is this a place I could see my kids, or their friends or people like them wanting to work in 10 years?’” If the answer was yes, the change was made and if not Sam’s had to let go of some things like nameplates and executive offices that conveyed status based on size and location. “Today you walk through and it is just teams of people working on products,” Furner said. The open design was important for another reason – trust. By removing barriers, the open design is meant to foster camaraderie and trust, which are seen as precursors to innovating around product, systems and process improvement, with the end game of increasing member satisfaction and sales. “We benchmark ourselves against start-ups and were trying to find what it is about the environment that keeps them working innovatively, but also make sure we were operating in a way that maintains values,” Furner said of Sam’s design thinking. “What happens in some really creative startups is you have a great idea and people are so focused on the work they fail to define the principles and values by which they operate. Then they end up in the news for bad behavior.” Conversely, at larger organizations such as Sam’s Club and parent company Walmart there is a tremendous emphasis on principles and values, but also a tendency to operate in ways that are less innovative unless innovation is intentionally fostered. “Innovation can only happen at the speed of trust. Having an environment where people are divided and they work in silos means there is a tendency to do the things that are best for their team before the broader group. When you put everyone together and they get to know each other the adversity goes away and the trust level goes up.”

FOCUSED ON THE CORE Furner is the latest in a long line of CEOs who have come and gone from Sam’s Club, including Furner’s current boss, Walmart President and CEO Doug McMillon, who held the head merchant and CEO jobs at Sam’s. “It is very helpful that Doug had those two jobs and is now running the company. He is a great example of a person who changes as the business environment changes, is very curious and always learning. He is very open to the fact that we have to make decisions based on the information we have.” That’s good, because Furner has had to undo some of the actions that took place on McMillon’s watch. For example, earlier this year, Sam’s announced plans to close 63 locations and has also moved to tighten the focus on the shopper segment Sam’s serves and the private brand strategy. “Hindsight is 20/20 and what Doug would tell you is if he ran Sam’s again there are things he would have done differently. If you fast forward in five years and I’m not running Sam’s there are probably things that I’ll tell you I would have done differently,” Furner said. The Sam’s strategy, which Furner readily concedes has vacillated over the years as senior leadership changed, is working today. Same store sales growth is consistent thanks to a tighter focus on who exactly Sam’s core member is and how best to serve them. With a household income between $75,000 and $125,000, Furner describes Sam’s core members as: “The above market income homeowner that typically lives in the suburbs with usually one person or two who are working, that has higher levels of college education and higher levels of home and car ownership than the general population. That is the group we are trying to serve and the group we are growing fastest with.” That core member is feeling pretty good right now and where Furner gets a quick read on sentiment is by looking at the mix of sales in the protein business. One of the surest indicators of consumer confidence is when members trade up to pricier cuts of beef and seafood from pork and chicken. “In general merchandise, there are categories that people may only buy once a year so it is harder to see if something has changed or whether we just had a good season in patio furniture,” Furner said. “The state of the consumer looks to be really strong. They seem to be confident and very resilient with household balance sheets that look good.”

Sam’s Club provides a range of fulfillment options, from club pick up to lockers and free shipping, a recently added benefit for those who purchase a $100 Plus membership.

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Beef, Meat Seafood and Members Mark. Full service meat departments offering premium beef and seafood are available at 50 Sam’s Club locations as the retailer redeploys labor and rethinks pack sizes.

Focusing on the core is about more than narrowing the shopper base served. Also relates to the company’s physical presence and optimizing a store base to serve the digitally engaged member. That was the mindset by Sam’s move in January 2018 when it shocked the retail world by announcing plans to close 63 locations, roughly 10 percent of its store base, and convert nearly a fourth of those locations to fulfillment centers. The first of these fulfillment centers opened in Memphis during the summer and other locations recently came online in Tampa, Fla., and Madison, Ill.

WHAT MEMBERS WANT

can get?’” Furner said. While the Sam’s Club strategy is resonating with members today, Furner is keenly aware that moving with speed to out-innovate competitors is what will ensure the company’s long term success. It is something he is reminded of when visiting the office of Walmart CEO McMillon, who keeps a copy of a 1930s Sears & Roebuck catalog on his desk. It serves as a reminder that things come and go in retail and what is old can become new again if given enough time. With the retail world in a state of disruption and the notion of channels and competition in flux, Furner’s simple view is that, “You still have to execute better than everyone and keep evolving and innovating.” RL

The proactive realignment of Sam’s physical presence was about getting ahead of where shoppers are heading and it is the same philosophy that affects merchandise decision-making. This mindset is best exemplified by the dramatic growth Sam’s has experienced with its Member’s Mark brand. “We are taking the approach that if we have a brand where we can differentiate or have a value or quality level that is different than the market then we stay with the brand,” Furner said. “If we have a position where we can’t do that or a category where there is no clear winner in terms of brand then it is our job to create the very best Member’s Mark item we can.” The application of that philosophy has helped Sam’s Club increase Member’s Mark penetration to nearly 28 percent of sales and 34 percent of unit volume, compared to a little less than 17 percent of revenue in 2015. It also helped that Sam’s unified a disparate portfolio of roughly 20 brands under the Member’s Mark banner, resulting in a much stronger identify. “In every category, we start by asking, ‘what do we believe is the right item to sell?’ After you’ve determined what the item is, we ask ‘where and how would I source this in the most efficient way Member’s Mark is poised to account for nearly a third of Sam’s Club sales in the coming years to give our members the best possible value they with the private brands serving as a point of differentiation and way to showcase value. NOVEMBER/DECEMBER 2018 Retail Leader.com

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> TECHNOLOGY AND INNOVATION

Data Done RIGHT TO DELIVER ON NEW CONSUMER EXPECTATIONS, RETAILERS MUST TRANSFORM TO AN OPERATING MODEL CHARACTERIZED BY AUTOMATION, PERSONALIZATION AND THE RIGHT KIND OF DATA INTELLIGENCE. > Gina Acosta

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Everyone in retail is busy trying to understand and predict what the future of the industry will look like. Some companies, big and small, have rushed to experiment and invest in data analytics, artificial intelligence and personalization, but for many retailers, those investments have yet to produce the kind of return they expected. As a result, business leaders, especially in retail, are now experiencing a sort of “Big Data fatigue” following the onslaught of hype over Big Data the past few years. They’ve listened to the “experts” and spent millions on infrastructure and business intelligence tools, expecting to gain transformative insights. Unfortunately, in many cases that promise has not come to fruition and it has left executives wondering how to get the most out of their investments. Of course, there are various explanations for negative ROI in retail. But one issue is that some companies are so overwhelmed by all of the experimentation that they have become mired in complexity and other roadblocks that are holding them back from true innovation. Another issue lies in the growth of data analytics tools and the abundance of easily accessible data, creating a culture that ignores the planning necessary to develop truly breakthrough innovation. In fact, “data analytics” in particular has become a $200 billion industry, fueled by speed, scale and competition within the rising digital economy, and it seems as though a new “analytics solution” is born every day. These days, top executives at retail and CPG companies are looking for a deeper understanding of how to overlay data analytics, artificial intelligence and personalization in a way that gets results quickly. Fortune 500 companies are telling leading data analytics firms such as Teradata that they are fed up with big analytics investments that haven’t borne fruit. It’s these kinds of frustrations that motivated Teradata COO Oliver Ratzesberger, the former analytics chief at eBay, to issue a mandate during his Oliver Ratzesberger, Teradata COO company’s annual user

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conference last month to retailers, CPG firms and other companies looking to data analytics to reinvent their business models. “Stop buying analytics. Stop buying ‘solutions’ that over-promise and under-deliver. Start investing in answers, answers that will change how your business operates,” Ratzesberger told a roaring crowd of 3,000 in Las Vegas in October at Teradata Analytics Universe 2018. At the show, the 40-year-old company unveiled a new logo, a new suite of software, and a promise to deliver “answers” to customers, not more analytics. “Data intelligence is only pervasive if it is 100 percent in service of everyone, every machine, everywhere all the time,” Ratzesberger said. He explained to thousands of Teradata customers, partners and employees why companies need to simplify their analytics investments, and how Teradata can help. The company showed off a new approach called Teradata Vantage, “a platform for pervasive data intelligence,” as Ratzesberger put it. Vantage provides a centralized bundle of tools, technology and applications that deliver a variety of analytic capabilities. But, it’s not just data analytics that is having a moment of reflection and reevaluation during this time of retail disruption. As change continues to occur at a faster pace, no company can afford to be fixed into one way of thinking. The challenge before retail and CPG executives now is to find new ways to adapt to quickly changing conditions and spot opportunities. Smart organizations have developed a system to deal with unexpected changes that threaten their business models. One such smart organization is Meijer, which has used “sentient enterprise methodology” to create more agile operations in this data-driven world.

MEIJER’S SENTIENT JOURNEY Executives from Meijer explained the sentient enterprise concept at the Teradata conference as a five-stage road map for businesses — even large multi-national corporations — to combine technology, governance and human engagement around data in ways that preserve startup-style agility. “You have to have the right culture at your company. Culture eats strategy for breakfast. You can have the best strategy in the world but you have to take a look at the culture of your organization. Are you a data driven company? Basically there are three types of companies. Number one, there are data driven companies. Number two, you’re on your way to becoming a data driven company. Number three you’re going out of business,” said Tim Zeitter, who leads Meijer’s Business Intelligence & Enterprise Data Warehouse infrastructure team. Zeitter says Meijer’s Big Data strategy is about making decisions in real time at the speed of data, with the system ingesting


information using algorithms to make most decisions autonomously. But the company says retailers have to do more than just collect and analyze data to transform their business. They have to implement real-time data ingestion flows to quickly update or add to those flows in response to changing business requirements. For Meijer, its transformation journey has five stages or platforms: agile data, behavorial data, collaborative innovation, analytical apps and autonomous decisionmaking. “I look at the first three stages — agile, behavorial and collaborative — as how retailers should be setting up to run their organization. This is the technology framework you need in order to transform your organization,” Zeitter said. Zeitter said Meijer is moving away from analyzing transactional data and looking more at behaviorial data. Meijer now believes that value comes from behaviors, not transactions. “We are changing from focusing on transactions to focusing on the behavior of people and the behavior of devices. Because of us stepping back and looking at the behavior of our customers, we have launched store pickup in 227 stores and offer a variety of in-store and delivery fulfillment options,” Zeitter said. Zeitter says when Meijer looked at the behavior of grocery delivery customers (the retailer outsources its grocery delivery to Shipt), the majority of those customers used mass transit. “They were visibly challenged in getting to our stores, and this service solved a problem for them. It was a much different expected behavior,” Zeitter said. The retailer also expanded grocery delivery to include alcohol after the company looked at behavioral data and saw that customers were buying a lot of craft beer. Meijer says it also took “a long hard look” at launching scanand-go technology similar to Walmart’s (Walmart quietly shelved its Scan & Go service earlier this year). But based on behavorial data, Meijer went with a different kind of express checkout technology: Shop and Scan. The Shop & Scan service allows shoppers to scan products as they shop with a Meijer app downloaded on their phones and bag the groceries on the go. To check out, shoppers hold their phones up to a self-checkout register, then walk out the door. “As customer expectations and technology have changed, so have we. And so has our Meijer app. Our app has personalization built in, with coupons, rankings and favorites personalized to their shopping behaviors,” Zeitter said. “We show their favorites on sale, we show the items that they may need, and we offer some suggestions on new items to discover. We do that by going back two years into the shopper’s purchase history.” The company is also moving forward on doing more with sensor data and adding a fleet of electric tractor trailers to better monitor fresh food temperatures. But beyond Big Data and personalization, Zeitter said, the retailer is looking at artificial

Data scientists at Meijer say the retailer is moving away from analyzing transactional data and looking more at behaviorial data.

intelligence and machine learning with technology such as item recognition and facial recognition.

BEYOND THE AI HYPE Meijer looking to leverage artificial intelligence and machine learning in its business processes is just part of the new normal in retail. “When you look at the term, ‘artificial intelligence,’ it’s not artificial, it’s automated. It’s looking at how to make a manual decision process automated so that you can re-purpose the resources that would have performed the physical processes. You can then have that individual look at ways to do more product exploration and look at different ways to improve the customer experience,” Halula said. He said there are four specific areas of retail in which artificial intelligence is going to be a game changer: inventory automation, workforce optimization, and customer experience. “Product availability is the hot topic for any retailer: How do I improve my inventory at the stores? What do I have available online? How does not having that product on the shelf at the right time affect that experience for the customer? You can have great marketing campaigns, great coupons, great promotions. But if you don’t have the product available at the time the customer wants it, it’s all for naught. So the last mile is absolutely critical. And AI can help with all of that.” Each retailer’s journey toward the future, or “sentience” as Meijer puts it, will vary in shape, size and scope. But preserving startup-style agility might be the most important key to success in this industry. RL NOVEMBER/DECEMBER Retail Leader.com

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> TECHNOLOGY AND INNOVATION

THE 2019 OUTLOOK FOR Retail Technology Innovation

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TECHNOLOGY DRIVEN RETAIL INNOVATION WILL HAVE AN EVEN GREATER IMPACT ON THE INDUSTRY IN 2019. HERE’S WHERE THINGS ARE HEADED WITH PRICING AND PROMOTION. > By Anthony Smith

As a new year dawns for an always unpredictable retail industry, one thing is abundantly clear: the disruptive effects of retail technology will continue to be felt in 2019. In fact, it’s a safe bet that as the year unfolds retail technology will have an even greater and more widespread impact than was the case this past year. That’s the nature of technology. When you work for a retail technology company and have the word “science,” in your title, you spend a lot of time envisioning the future and what innovations are likely to have an impact on retailers and their customers. My team and I spend every day on the front lines of applying artificial intelligence (AI) and machine-learning science to drive quantifiable business value and customer-centric pricing and promotions for retailers. One of the things we’ve notices is that is a profound and accelerating change underway in how retailers think about AI in retail. It’s gone from an abstract discussion of what AI might do for retailers in which areas to a much more actionoriented consideration of how to get started now reaping measurable benefits in the business, both for their customers and for the bottom line. Fortunately, in retail pricing, AI has been around for more than a decade and has matured to a very robust, productized set of tools and capabilities that can yield quick win/win pricing and promotions that key in on what matters most to shoppers, factoring in rapidly changing variables like competitive elasticity and price sensitivity down to the item level to identify where retailers need to be aggressive on prices Anthony Smith

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and where they can recover margin elsewhere to maintain long-term business health. These are exactly the type of use cases where AI is particularly effective. Scores of retailers have successfully implemented these technological capabilities and charted successful, phased paths that deliver quick ROI at each phase to fund subsequent phases, all while avoiding known pitfalls to minimize threats to success. In 2019, I see this technology and implementation approach moving from the realm of cutting-edge retail innovators to more mainstream retailers who are committed to making themselves more relevant than ever to shoppers while also outperforming competitors who are still hesitating about what technology steps to take.

RETAILERS GET DYNAMIC Today’s incredibly fast-paced retail environment sees new products and competitors disrupting markets daily, the expansion of global giants into ever-increasing geographies and market sectors, and new formats, from pop-ups to kiosks from specialists inside big-box stores. Where retailers once had the luxury of lead time to determine their price adjustments and promotional offers, today they must respond virtually in real time to changes in markets, customer preferences and the competitive environment. And as I recently heard an industry analyst say, we may be in an era of shopper hyper-adoption as they gravitate to new apps and delivery options, but we are also in an era of hyper-abandonment as a single sub-optimal experience or a fleeting out-of-stock event means they walk away from your brand forever. So, it’s incumbent on retailers to reach shoppers with relevant, carefully crafted prices and offers, when and where they matter, across a variety of channels and vehicles. And that means retailers need to give serious consideration to taking a dynamic approach to pricing. Contrary to many assumptions, the definition of dynamic pricing does NOT mean changing prices across all items at all hours of the day. Retailers justifiably suspect that shoppers will have little tolerance for adding an item to their cart at one price, only to find at checkout that the price has


changed. But there are three elements that are critical when we think about dynamic pricing in the real world of retail. Dynamic pricing must be: Targeted and smart, focusing on updates on those items where shoppers are most sensitive to prices and to competitive offerings Flexible in frequency, allowing price changes to happen at a speed that matches your business parameters Structured for a fast and automated process, leveraging self-learning, science-based algorithms and automated workflows Today, retailers have access to unprecedented detail on their shoppers’ behavior, competitive data and market evolutions. Additionally, infrastructure to enable highly targeted updates at the speed of your business on select products is increasingly ubiquitous and affordable, from AIdriven price and promotion optimization to electronic shelf labels. I think 2019 will see retailers adopting AI powered science and automation and taking a much broader view of dynamic pricing that is fueled by intelligence. We’ll see it beginning to evolve to a more mainstream role — again, within the context of each retailer’s specific business model. Dynamic systems, particularly those that incorporate machine learning, by definition should continually learn and improve. Dynamic pricing detects real-time demand signal changes, shifts in market factors, and evolving competitive practices to respond and recommend price changes in a way that traditional pricing could never achieve. Yet human oversight remains important, so dynamic pricing must give retailers the ability to set “bumpers” in the form of defined tolerances. Recommendations falling outside these preset limits can be flagged for human review so retailers get the benefit of price agility with the assurance that any recommendation that violates business rules or other guidelines will trigger manual intervention to either accept or reject the recommendation.

PRICE REMAINS KING — BUT MUST BE FAIR AND NON-ARBITRARY In an industry dominated by discussions of fast-changing models for shopper experience, buy online and pick up in store and other cross-channel purchase and delivery options, loyalty programs and multi-channel engagement, it can be easy to overlook the most important factor of all: price. Recent Revionics-commissioned research conducted by Forrester Consulting surveyed shoppers globally, and it found that price was the number one factor shoppers cited when deciding where to shop. This was true across all retail sectors as diverse as grocery, apparel, DIY, and convenience. At the same time, shoppers are surprisingly open to the very technologies that we’re discussing here. For example, shoppers are clearly ready for science-based dynamic pricing. In the Forrester study, an impressive 78 percent of shoppers say they

are comfortable with the use of data science to determine prices — with the qualifier that they receive a fair price for the product. Conversely, just 6 percent of respondents say they don’t think it is fair at all for prices to change dynamically. This concept of fairness in pricing is critically important: 59 percent of shoppers reported that they would refuse to purchase an item if they perceived the price as arbitrary. They accept price increases or decreases that remain within the “fair” range if they are based on data science — that is, driven logically and not arbitrarily.

2019: A YEAR OF OPPORTUNITY

“Where retailers once had the luxury of lead time to determine their price adjustments and promotional offers, today they must respond virtually in real time to changes in markets, customer preferences and the competitive environment.”

Periods of rapid change present significant risk — and profound opportunities. Retailers willing to rethink the “tried and true” approaches to pricing and promotions can leverage the unprecedented advantages now available to them through AI-powered science and rich data sources that give deep insights into shoppers, competitors and the overall retail landscape. Taking advantage of the adoption curves from those who have already walked down that path gives them a jump-start on best practices and lessons learned, allowing for rapid-ROI initiatives that deliver the utopian win-win: prices and promotions that better engage and retain customers, while giving a boost to top- and bottom-line results that ensure a healthy business for the long run. RL Anthony Smith is Vice President of Science Services at Revionics, a leading global provider of pricing, promotion and margin optimization solutions.

NOVEMBER/DECEMBER 2018 Retail Leader.com

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THE RL RESEARCH REPORT The Click & Collect Opportunity (Frequency of usage among 4,759 shoppers)

Food Retail’s New Frontier

57%

28%

NO TOPIC IN RETAIL IS HOTTER RIGHT NOW THAN OMNICHANNEL FULFILLMENT AND CLICK AND COLLECT IN PARTICULAR.

Once Twice

15%

Three times or more

The Usage Sweetspot (C&C heavy users by age)

12%

1%

15%

20% 29% 18-24 25-34 35-44 45-54 55-64 65+

23%

Higher income = increased frequency (Income among those who use C&C more than 12 times annually)

18%

26%

57%

Less than $40K $40K to $80K $80K+

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Retail Leader.com NOVEMBER/DECEMBER 2018

The race to best satisfying shoppers’ expectations ratcheted up in 2018, especially when it came to the integration of digital and physical capabilities. Those retailers who began the year dabbling with click and collect moved to quickly expand the service and while others added the new customer convenience. As 2019 unfolds, a clear trend line has emerged that shows adoption will continue to grow while usage among those who have experienced the convenience of grocery pick up will do so with greater frequency. Evidence of this can be found among data from the InfoScout OmniPanel that shows among 4,759 users of the service, 57 percent were first timers. However, among the 28 percent who used click and collect more than three times, about 6 percent used the service more than 12 times annually. Thanks to a strong value proposition of convenience, click and collect naturally resonates with career-minded, busy families who fall in the 35-54 age range. They rely on the service for stock up trips, but also of note is that convenience is a key factor for those older than 55. They accounted for 32 percent of click and collect usage compared to only 16 percent for those 34 or younger. While higher income, larger households are the predominant users of click and collect today, all shopper segments appreciate convenience which points to continued click and collect momentum. It also means retailers will need to address store operations, replenishment, staffing, training, merchandising and user experience issues to win the future of food. RL


> WHAT’S NEXT...

Retail Healthcare 2.0

O

A NEW ERA OF HEALTHCARE HAS ARRIVED AND RETAIL HAS A MAJOR ROLE TO PLAY. > By Dr. Chris Kryder Over the course of my three plus decades as a physician, I have experienced numerous changes within healthcare. Costs continue to escalate, barriers to access persist, and the influence of consumerism continues to push the industry into unknown areas with new business and care distribution models emerging. And although quality of care has generally improved, there is still a long way to go before we achieve a more patient-focused, physician-friendly ‘system’. The typical patient experience of today is basically an interruption to their daily routines and lifestyle. It requires time off work, waiting room delays, routine paperwork, tests and a brief conversation with a physician. No wonder patients are seeking alternatives that are less disruptive. We are witnessing the arrival of Retail Health 2.0. Fifteen years ago with the birth of Retail Health 1.0, Minute Clinics and other retail-based self-service healthcare models emerged and delivered a wake-up call to traditional healthcare establishments, especially hospitals. With little to no connection to a primary care physician, retail health locations leveraged their convenience and access-advantage to offer self-limited, low-level acute care services and build additional consumer value, traffic and revenue. At the end of the day, patients are consumers and consumers are patients. Retail health continues to evolve, merging together consumer lifestyle/behaviors, patient needs and technology advancements into new models that leverage real-time health data to deliver pre-emptive care and provider intervention, all while shopping for toothpaste and other essentials or filling a prescription. One interesting new care area for retail health is in chronic disease management. In a new initiative between Rush University Medical Center in Chicago and higi health stations located in more than 200 local grocery stores, pharmacies and community centers across the Chicagoland area, primary care physicians at Rush can now remotely connect and monitor their patients real-time at no additional cost to the patient. Patients are directed by their Rush physician to regularly conduct their higi-enabled check-up at local retailers where vital signs — blood pressure, weight and heart rate — are securely recorded and transmitted real-time for physician review. Rush is currently working with hypertensive patients but will expand to other chronic conditions like pre-diabetes, diabetes, and obesity. These patients will be directed to the higi stations between physician visits in lieu of office check-ins, saving the patients and physicians time and money, and allowing the physicians to focus on those patients with the greatest needs. This new retail solution — a combination of real-time patient data plus automated physician interventions — will drive increased access and adherence for patients, and an expanded primary care network for Rush. This complements the expansion of additional Rush outpatient clinical sites. Physician productivity at Rush will also improve, as much (joyless) physician-generated data entry is eliminated by the higi real-time secure integration of data

directly into the patient electronic health record. For retailers, this model is shown to enhance retail brand relevancy, build store traffic and increase sales revenues. Retailbased, patient-centered models with solutions like those offered by higi will be key to care access and health monitoring for hard to reach populations that have limited access to provider and Dr. Chris Kryder hospital services. Consider the recent acquisition by CVS of Aetna. Perhaps CVS will provide zero copayments for Aetna members with selected chronic diseases, perhaps conditioned upon regular remote monitoring of vital signs at CVS stores. Or imagine the possibilities of the collaboration among JPMorgan, Amazon, and Berkshire Hathaway. Might Berkshire Hathaway’s Geico division offer discounted health insurance to their existing auto-insured base if members obtain regular, nocost medical monitoring at health kiosks conveniently located at JPMorgan’s 4,000 Chase banks — with direct prescription ordering at those kiosks from Amazon? Better experiences for consumers, along with reduced costs and improved access to healthcare providers, are poised to dramatically increase in retail settings. Retail leaders should welcome this convergence and the opportunity retail-based healthcare presents to enhance the role of the pharmacist and resources available in-store. As healthcare moves outside of the hospital, in-store care experiences will move rapidly beyond providing flu shots, filling prescriptions and offering over-the-counter medicines. Technology adoption of remote medical monitoring and app-based communications that enable management of high cost chronic illness in the retail setting will rise in importance to support lower costs and accessible care. Technologies, like higi, located in nearly 11,000 retail stores nationwide, as well as others, deliver this needed secure and immediate connectivity between doctors and their patients. With nearly one million screenings per week by higi users at retail locations, it is evident this model is working. These, and other, innovations are knitting together the healthcare and retail landscapes, and providing positive disruption to the larger healthcare system in which the old hospitalinsurance playbook has failed. Tech-enabled partnerships among healthcare entities and retail providers are mutually beneficial, enabling better quality care, lower costs, greater access, and more convenience. But the big winner will be the patient. Doctors want to keep patients connected, out of waiting rooms and hospitals, in their communities...and most of all — healthy. RL NOVEMBER/DECEMBER 2018 Retail Leader.com

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RL - Nov/Dec 2018  

RL - Nov/Dec 2018