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Retailer brand equity: “If you’re gonna be in business, you got to do the hard stuff.”

53:39

Mercatus Radio presents the Digital Grocer - Season 2, Episode #4

This episode features a wide-ranging conversation with Sylvain and Kevin Coupe, The Content Guy over at MorningNewsBeat.com.

Sylvain opens the conversation by asking Kevin why retailers don’t always think of themselves as a brand and don’t use their own data to the greatest possible degree and using Walmart’s evolution as an example. To a great extent, Amazon has woken everybody up to the value of customer data in growing customer affinity through suggestive selling. The conversation turns to a timely topic, which is the risks that come with using gig workers as an extension of the retailer’s business and brand, including what will happen to the gig economy should the U.S. slide into recession. Lastly, the two touch on the nature of ecommerce giants Walmart and Amazon and their critical failing in not having enough people there who are merchants.


Kevin Coupe:                So, I think there’s tons of pain out there and I suspect you’d also see, and this will affect the gig economy, you’ll see a contraction in the middle that that will be accelerated. The retailers out there who are in that kind of middle, that muddy middle where they don’t have a strong brand equity, their prices are not particularly great, maybe one of their advantages has always been they’ve got a decent location in towns that don’t have a lot of retailers; but that’s an advantage that goes away if suddenly UPS or the postal office is dropping off packages at your front door.

Sylvain Perrier:              Welcome, ladies and gentlemen, to the Mercatus podcast, Digital Grocer, episode 15. We’re recording right here at Mercatus HQ, and it’s … summer time is actually slowly coming to an end here in Toronto. It’s starting to get cold. That means the new school year is just around the corner, and with that, we’ll likely be heading over to Groceryshop in Las Vegas, which I’m kind of excited, because this year we’re actually one of the top sponsors. Then it’s going to be the mad rush towards Thanksgiving, and then NRF will be just around the corner from that.

Sylvain Perrier:              I’m your host, Sylvain Perrier, president and CEO, Mercatus Technologies. Guess what? I’m actually flying solo in the studio here today. Mark Fairhurst has been sequestered … No, he hasn’t been sequestered. He’s actually doing quite fine. We do have our team at MouthMedia who is engineering everything for us today.

Sylvain Perrier:              In our last episode, we had a special guest, Karen Short, who’s the managing director at Barclays Investment Bank. She’s a former Toronto native, and she’s had this amazing career in the banking industry. Karen was on the show to help us break down this equity investment research paper that she wrote that’s titled “Dissecting the Instacart Addiction” — I’ve got to tell you, the feedback that we got on that episode alone was just tremendous. Tons of questions came in from our listeners. I know that Karen also collected a tremendous amount of feedback from retailers, not only located in the US, but also located in Canada, and quite a few that actually came in from Europe with some additional questions for her.

Sylvain Perrier:              We couldn’t have done that show without someone that’s very important to the whole process. The person who led us to this report is a gentleman by the name of Kevin Coupe. Some time back in mid-June, Kevin posted this really interesting video on YouTube accompanied by a post on morningnewsbeat.com, and it was titled “Data Weaponization”. In the video, Kevin went on to explain some examples of an individual that used to be an Instacart user, and quite frankly, likely still is, and how they used to access, inside the Instacart app, Whole Foods, and suddenly … Whole Foods, we all know, is no longer part of the Instacart ecosystem, but this individual was able to receive messages from Instacart suggesting that the same products that he used to buy over at Whole Foods are available at other retailers.

Sylvain Perrier:              Very interesting topic. To kind of further discuss data weaponization and things past that, we’ve asked Kevin to join us. If I know something about Kevin, he will pontificate on what he’s seeing happening in the grocery space. Now, whether it’s in speeches-

Kevin Coupe:                [crosstalk] For the record … I don’t know, pontificate, really?

Sylvain Perrier:              Pontificate, for sure. Why not?

Kevin Coupe:                I dunno. It makes me seem very papal. I like to think of myself as being among the crowd, not up in the window, but go ahead.

Sylvain Perrier:              If you walk around the neighborhood with that pointy hat, I have to see it [inaudible] some sort of papal paraphernalia around you would be amazing.

Kevin Coupe:                My kids say, by the way, “Have soapbox, will travel.” I guess you make a point.

Sylvain Perrier:              Exactly. For those of you out there that don’t know Kevin, whether it’s in speeches, books, videos around the internet, Kevin actually brings this amazing amount of knowledge and experience around everything that’s the world of business, food and wine, and consumer trends. He is the speaker, the author, the video producer, and he’s quite gregarious, as you can tell. He’s an amazing content guy for morningnewsbeat.com. Welcome to our podcast.

Kevin Coupe:                Thrilled to be here.

Sylvain Perrier:              Kevin, in your journeys … If I go back to kind of what you had originally posted around data weaponization, how do you see retailers manage, or maybe, quite frankly, maybe they’re struggling, in terms of brand versus marketplace? How do you see that playing out?

Kevin Coupe:                I should say first of all that I am not a retailer. I worked in retail a little bit when I was in high school and college. I’ve never been a food retailer, I’m just somebody who’s been writing about it for more than 30 years. My observations are just that. I can’t claim to having practical experience in terms of having to have done it myself, which is maybe why I pontificate so much, I don’t actually have to do it. In the broadest possible analysis, I don’t think there’s anything new about the notion that retailers don’t always think of themselves as a brand and don’t use their own data to the greatest possible degree. I think that has been a common trend, especially in the food retailing side, for long as I’ve been doing this. One of the reasons Walmart, which … When I started writing about food retail so many years ago, Walmart didn’t even sell groceries. One of the reasons that Walmart woke everybody up is suddenly, they were accessing data in terms of product movement and in terms of category management and things like that that nobody else was using, which forced the industry to adopt this thing that was then called efficient consumer response. They got really good at being efficient, and they got really good at responding. They didn’t always focus on the consumer enough.

Kevin Coupe:                I think in general, retailers, part of their problem is they don’t necessarily think of themselves strongly enough as being a brand. They still, a vast majority of them, think of themselves as being vehicles for other people’s brands. Now, clearly there are exceptions. In Canada, Loblaws certainly doesn’t act that way, and Longo’s doesn’t really act that way. For example … I don’t want to leave anybody out, but I can’t go through everybody, in the States, Wegmans, Dorothy Lane Market, H-E-B Central Market, Metropolitan Market, Bristol Farms, companies like that, those are really good at thinking of themselves as brands, but the vast middle has generally not thought of themselves that way, and even though they were collecting data, they weren’t using it. There’s a difference between having actionable data and then actually acting on it.

Kevin Coupe:                The common thread in probably things I’ve been writing for 30 years is, data is the ultimate weapon, or certainly one of the ultimate weapons, in the food industry that most retailers don’t take advantage of. I’m giving you a really long answer here. To a great extent, Amazon has woken everybody up to that. Suddenly, not only does Amazon have more data than anybody else about their customers and about product movement and things like that, but they actually use it to say, “Oh, if you bought this, you’ll like this,” which is a radical notion for a lot of retailers. The whole notion of subjective … suggestive selling, which I guess is also subjective, but that whole notion, most retailers don’t do very well. They might do it in the store, but they rarely get outside the aisles with that.

Kevin Coupe:                This is forcing a lot of retailers’ hands. Then what happens, and this sort of gets into the Barclays analysis, then what happens is suddenly, they’re faced with the idea that they’ve got these enormous competitors who have more data, they have more money than anybody else, they can be more aggressive, and therefore, what do they do? They look for the easy solution. I think the easy solution does not always serve their brand well, but again, not serving their brand well is something that a lot of retailers, that’s their de facto position or default position.

Sylvain Perrier:              Yeah. There becomes this inherent risk when … The way that I would explain this, I think that the notion of joining these marketplaces, and there’s a bevy of these solutions in the industry today, it’s not just relegated to the Instacart world, there’s this notion that as a retailer, and I think you touch upon it, not every retailer starts off as positioning themselves as a brand. I think a good US retailer, and you’ve mentioned a lot of them … The one that I always have an affinity towards is Sprouts Farmer’s Market. I think historically, that’s the way they’ve positioned themselves. Then there’s this notion of, “Okay, so let’s go where the masses congregate,” and the masses congregate, sometimes, around the these marketplaces.

Sylvain Perrier:              There’s this notion … two opposing forces, do we go ahead, co-opt our brand, and just jump into these marketplaces, or do we leverage them for additional distribution? That’s a very fine line that I’m seeing in the industry today in terms of, how do you do that very successful? Some of the terms that I’m hearing coined now out there in the space is omni-channel delivery, or omni-commerce delivery, which is basically, “Yes, let’s leverage these marketplaces, but let’s understand they should be treated as a commodity for no better reason.”

Sylvain Perrier:              In your world, because you speak to a lot of grocery retail executives and CPGs out there, are they talking about the risks of using gig workers at all, Kevin?

Kevin Coupe:                Not as much as you would think. I think that there is a sense of being willing to outsource stuff that … We know that in food retail, margins are tight, they’re very, very slim. Therefore, the notion of being able to outsource things to people, to other companies, where they don’t have to write a check, and if they’re lucky, they just get a check, it’s almost too tempting for many of them to resist.

Kevin Coupe:                I don’t hear a lot of retailers say … There are exceptions. I was with a retailer not that long ago who was saying, “I’m getting out of Instacart, and I need to figure it out, do it myself. I can’t be outsourcing my brand equity to another company.” Music to my ears. I felt like, “Okay, I got … ” This is somebody who’s been reading MorningNewsBeat for a long time, so knows that I’ve been on this soapbox for a long time. I’m not saying that she was making this decision because of me, but I feel like I got one. Somebody understood the thing that I kept trying to say, which is what the Barclays report sort of … I was saying things based on opinion, gut feeling, and hunch, and then Barclays came in and did all this unbelievably great research that quantified everything that I had felt in my gut.

Kevin Coupe:                I honestly don’t think that people are overly worried about that, but again, that’s not surprising. Think about it for a second. How many retailers do you know who, when it comes to doing sampling in their aisles of their stores, have, for the longest time, outsourced that to other companies, and they very often will only do sampling if a manufacturer is going to come in and pay for it and pay for the people who are there, who might not necessarily be representing the retailer to their best advantage? That happens all the time. It’s always happened, because they don’t want to put the people in the aisles, they don’t want to have that expense. It’s like, “Well, if we’re going to sample, we’re going to have somebody else pay for it and somebody else staff it.” My feeling is, if I were a retailer, I’d want my own people in the aisle sampling stuff, because I’d want them to represent me, and if they represent me well, they’re going to sell more stuff, and that’s my job as a retailer.

Kevin Coupe:                I have a retailer near me where I live in Connecticut called Stew Leonard’s, and Stew Leonard’s … I think occasionally they let other people come in and sample. As we record this, I was just at Stew Leonard’s about an hour ago. They must have had half-a-dozen to 10 people in the aisles, their own people, sampling various products, because that created a sense of excitement, it created a sense of theater. You smelled the food, it got you hungry, all of which adds to the experience. Stew Leonard’s happens to be a company that’s very, very focused on their own brand, an unusual company. I can explain why if you want me to, but that’s what they did.

Kevin Coupe:                The notion of outsourcing delivery to drivers who are not your own is not something they seem to worry about, but as I say, they’ve been outsourcing this kind of stuff inside their stores forever. It’s the typical mindset, I think.

Sylvain Perrier:              Yeah, I think it’s-

Kevin Coupe:                [crosstalk] Again, a really long answer to a short question.

Sylvain Perrier:              It’s a good comparison, because I think at the end of the day, if you look at … The Instacarts of the world came in at a time where we were entering what I like to call Generation 3 of digital commerce. The challenges with the early proliferation of this next generation of solutions became, how do you deal with the labor model? How do you deal with the in-store picking and packing? How do you deal with the delivery? When you compare it against the in-store sampling, it’s almost the same problem that retailers tried to solve. “Let’s let the CPGs pay for it, it’ll be funded as part of the trade and co-op programs that are getting products listed inside the store, and then the labor will be figured out with an external party.”

Kevin Coupe:                I can remember, and this is … I don’t know if this would still be true, I haven’t done the math. A good friend of mine named Glen Terbeek, who basically was at Anderson Consulting before it became Accenture, and he ran this smart store operation in Chicago for them that was unbelievable. Glen’s one of the smartest, savviest people I’ve ever met about the food industry. I can remember, 10, 15 years ago, Glen saying, “Listen, if you do the math and you look at the entire profit in the US supermarket business, that number is almost the same as all the promotional allowances, failure fees, slotting allowances, all that stuff, money paid to demo stuff in aisles that the retailers are getting.” The problem is, of course, they’re making money on the buy, not on the sell. It corrupts, with a small “c”, the entire supply chain when it comes to being responsive to what the consumer wants.

Kevin Coupe:                Again, this is the short-term … You’re right. Again, the quick buck, the quick check, the, “How can I build a little bit more margin into my system?” has always been the primary impulse for most retailers. By the way, I totally get that. Their margins have always been terrible in terms of … They’ve always been pretty sharp, so I get it, but at a time when I think there are existential challenges to a lot of these retailers and their brand equity, I don’t know that that’s a risk that’s worth taking anymore, certainly not a long-term risk.

Sylvain Perrier:              I’m going to give you an opportunity to really pontificate here-

Kevin Coupe:                [crosstalk] Like I haven’t been pontificating enough to this point, right?

Sylvain Perrier:              You and I have lived through-

Kevin Coupe:                [crosstalk] He doesn’t even know how to respond to that, folks.

Sylvain Perrier:              You and I have lived through more than one economic downturn. I think the worst one for retail would have been the ’08-

Kevin Coupe:                So …

Sylvain Perrier:              I think the worst one for retail would’ve been the ’08 one where you had consumers trading in and trading, quite frankly, trading out of the call it the tier retailers that they were more accustomed to. So if you assume call it next economic cycle, two to three years, we’re going to hit another downturn. Where do you see the whole gig economy go at that point?

Kevin Coupe:                That’s a good question. I’m not entirely sure I’m qualified to, I should say I’m not an economist, don’t even play one on TV. But I would say, listen, if the economy contracts, if we go into a recession, and I can’t even begin to guess at this point when we might go into recession and how bad that recession might be. I can’t make sense of what’s going on. And frankly, there are a lot of economists that can’t make sense of what’s going on right now either because everything seems so volatile, economically as well as as politically. But I mean if we work on the assumption that the economy is going to contract I think that, I mean, everybody is going to have to tighten their belts. Everybody’s going to … Will people buy as much stuff on Amazon in a bad economy as they do in a good economy? No.

Kevin Coupe:                Will people buy fewer specialty foods and more commodities from supermarkets? Probably. I think that depending on where the pain comes, if gas doubles in price, are people gonna drive less? Well that’s certainly going to have an impact on things like delivery costs. So inevitably everybody is going to feel it. I think that.

Kevin Coupe:                But … And if we talk about the the Barclays, I know analysis, one of the things they talked a lot about was the fact that Instacart is almost, certainly is building dark stores and Instacart is inevitably going to be able to go into markets where it does not have a partner. And begin to act as a pure play online retailer. And in fact will be able to do the same thing in markets where they even have partners, they won’t need those partners anymore.

Kevin Coupe:                Well dark stores are pretty efficient, and if you’ve got a … And I’m turning this back into the Instacart thing, but for a reason. So if they’ve you got a situation where they’ve got shopper lists, they’ve got consumer data, they know what people want, they’ve got dark stores, and they’re stocking the products that people are buying, and they’re able then go to the manufacturer and get deals on their own that are not necessarily connected to the local brick and mortar retailer that was using them as an Omni channel solution.

Kevin Coupe:                They’re going to be pretty well positioned to be able to find the soft spots in the consumer experience and, go after them because they’ll know and there’ll be pretty efficient about doing it. So the same challenge will be there for retailers, both brick and mortar retailers, Omni channel retailers, Amazon, I mean everybody’s going to have to find … May have to operate at a different level.

Kevin Coupe:                Frankly, Amazons, the big companies will have certain built in advantages because the cost of money to them, especially the Amazon has traditionally been so low. I think it’s Scott Moses, who’s a really smart guy about this stuff, says that, “Amazon borrows money at cheaper rates than all but six countries in the world or something like that.”

Kevin Coupe:                So their ability to respond and lower their prices and be able to maintain a high level of service, I mean they’ve always shown they don’t care. It’s not that they don’t care about profit, but they’re willing to reinvest their profit for the long term, means they’re willing and able to play a long game. That is going to be much harder for retailers who have never been good at playing the long game, that have generally played a short game in the ways that we’ve already talked about.

Kevin Coupe:                So, I think there’s tons of pain out there and I suspect you’d also see, and this will affect the gig economy, you’ll see a contraction in the middle that that will be accelerated. The retailers out there who are in that kind of middle, that muddy middle where they don’t have a strong brand equity, their prices are not particularly great, maybe one of their advantages has always been they’ve got a decent location in towns that don’t have a lot of retailers; but that’s an advantage that goes away if suddenly UPS or the postal office is dropping off packages at your front door.

Kevin Coupe:                Those are the guys, those are the companies that are going to be, I think in deep trouble because they will not have the infrastructure, the economic infrastructure, and the other kinds of infrastructure you need to sort of survive if things begin to contract. But it’s not like the gig economy is going to go away, I can’t imagine, I think that’ll just play out at different levels and different retailers are going to be better positioned to take advantage of it.

Sylvain Perrier:              It’s interesting, like even last week, the big announcement with Walmart reshuffling their executive group and they’re blowing through some significant capital to sustain their whole e-commerce play.

Kevin Coupe:                What’s the number? It was from a few weeks ago. Right? That was some number of how much they were losing?

Sylvain Perrier:              Yeah. A billion.

Kevin Coupe:                A year?

Sylvain Perrier:              A year, and then I’ve always said Walmart’s kind of like the bellwether for consumer spending in the US with respect to retail.

Kevin Coupe:                Donald Trump just said the same thing. He said, “Pay no attention to everything else, Walmart’s numbers are up. That’s all you need to know about the economy.”

Sylvain Perrier:              But now I’m starting to wonder if their cash reserves are enough to support their long-term liabilities? And I see this amount of money being spent on eCommerce and I’m like, “Well, are they really going to be a player?” When you look at a company, like you said, like Amazon, that’s borrowing money hand over fist at a cheaper rate than the majority. And quite frankly, I think they bought Whole Foods for the most expensive Petri experiment you could ever think. Where does Walmart stand into this? Are they going to continuously play catch up? Are they a mainstay? What’s your view on these guys?

Kevin Coupe:                I think Walmart has been, to me, Walmart has been far more nimble and, and willing and able to respond to the Amazon challenge than I would’ve expected 18 months ago, two years ago.

Kevin Coupe:                I would’ve bet real money for me, real money is $5. I would’ve bet five bucks that when they bought Jet they’d screw it up. They clearly have not. In fact, what they did is they gave Mark Lore the keys to the truck and said “Drive it,” which is very unlike Walmart.

Kevin Coupe:                So I think, listen, I think that some of their experiments, the buying of things like Moose John, Bonobos, and companies like that has not played out the way they would have expected. I think that that those were kind of strategic moves to kind of cover their bets in different places. I think those are probably expensive experiments that did not play out the way they would have thought. And the word is they’re going to try and sell some of that stuff.

Kevin Coupe:                I don’t think … I think Walmart’s here to stay. I think the huge advantage they do have over Amazon at this point, is they have so many places where you can pick up your groceries and they seem to be moving fast, faster than they were on that at this point. In term of the is expanding that. I can remember saying, I can remember writing two or three years ago before they even bought Jet, is that I thought Walmart at that point should have said, should have put out a press release on a Monday and said, “We will have pickup depots in 2000 of our US stores in three weeks.” And just blown it out. And that would have made a statement to the marketplace. They’ve taken longer to do that than I would’ve. I would would’ve recommended that, you know, what am I going to tell Walmart, right? They go, “Yeah, yeah. Like Coupe knows what he’s talking about,” but I do think that they are here to play at a certain point. Some of it depends on what happens with Amazon too. So what happens when Amazon opens this new chain of supermarkets that has been reported? I don’t think Amazon’s actually confirmed it yet to the public. I think they’ve only confirmed it to the Wall Street Journal.

Kevin Coupe:                But what happens when they open those stores? What does that mean in terms of, what does that do to their operating model? What do those stores look like? How do they change as they become more of an omnichannel retailer? What liabilities do they take on as they make all these investments?

Kevin Coupe:                To me that will in some ways tell us what Walmart will probably feel it needs to do. We can talk what those Amazon stores, what I think they should look like. I’m not entirely convinced they will look like, but what I think they should look like and what you think they should look like, if you want.

Kevin Coupe:                But I think that there’ll be a point at which Walmart will say, “All right, we’ve put as many of these click and collect operations into as many stores as we need to. We’ve got a reasonably robust delivery system, or as robust as we needed to be because we think click and collect is going to be the answer.” And by the way, I’m sure you find the same thing, right? I find there’s two entirely different camps in the food business. Some people think that clicking.

Sylvain Perrier:              Absolutely.

Kevin Coupe:                Right? And then there is some people who think no, no click and collect is just a way station to delivery and that somebody, but you know, it’s really interesting and that those people feel passionately about that.

Sylvain Perrier:              Oh yeah, and here’s the thing, like if you compare both retailers, right? So I’ve spent some time with Amazon, I’ve spent some time in Arkansas with the folks over at Walmart and they were so diametrically opposed, culturally the way that they operate and both of them, and here’s the funny thing, both of them are like when you step into a room, they’re really six Sigma people that are brilliant at operations and they’re very few merchants that are actually part of part of that culture. So-

Kevin Coupe:                Are we talking about both companies or are you talking about one in particular?

Sylvain Perrier:              About both. Really at the end of the day.

Kevin Coupe:                Okay, I’ll agree.

Sylvain Perrier:              So when you deal with the Walmart folks, the big advantage that they have is okay, they have a robust back end but you know, very conservative in nature. But the recent statistic that they have is that 95% of the United States in population lives less than 16 miles from a Walmart.

Kevin Coupe:                Right.

Sylvain Perrier:              And that’s a significant advantage. And then you have Amazon that has kind of mastered logistics and quite frankly, I think will have a less an issue coming into the brick and mortar space because they’re not going to come to the table with a bunch of preconceived notions and so on. Walmart’s strength minus the culture, I think for them to get into the e-commerce ecosystem and become a leader in the e-commerce system, somebody at some point going to have to drop the gauntlet and say, “All right, let’s tell the shareholders here, we need to be isolated from our brick and mortar and not be slaves to it and we need to leverage it.” Kind of like what you’re suggesting, click and collect is critical.

Sylvain Perrier:              Yeah, to me in my world, I think for Walmart to be successful at e-commerce, at some point somebody needs to make the point that it can’t be to the shareholder pressure that may be exercised in saying, “Hey, you guys need to be successful on your brick and mortar first and foremost, because we can’t continue leveraging our assets to support something that’s failing.” And I think that’s probably what’s holding back a little bit, the notion of e-commerce being successful at Walmart as where at the other side of the coin at Amazon, they don’t care what the shareholders think.

Kevin Coupe:                Well, absolutely. And I think your point about Walmart being culturally conservative is absolutely true. I can remember, I don’t know how, five, six, seven years ago, whatever it was, they were talking a lot about how they were going to make advances in the fashion business. And they opened a fashion office in New York.

Sylvain Perrier:              Oh my God.

Kevin Coupe:                And in fairly short order, within a year or two, they closed that office and moved it to Bentonville, Arkansas, which makes sense because Bentonville, Arkansas is the fashion capital of the world. I’m being sarcastic, but to me there’s always been a Walmart bias towards, even when they’ve tried to get outside their comfort zone, it’s like the Al Pacino line from Godfather III, an otherwise not great movie, where, “Once I’m out they drag me back in.” Right?

Kevin Coupe:                So there’s always this impulse to take even the things that they have acquired or built that are supposed to be different and kind of make them part of the Walmart culture. Right? You even saw that happen after they bought Jet, and in Jet’s offices they traditionally had beer in the office because that’s after work. They were an internet company, they had beer.

Kevin Coupe:                Oh no, not at Walmart. Now Walmart adjusted and let them keep the beer. But that’s never their first impulse. So I think that, and I give enormous kudos to Doug McMillan for understanding that the old rules don’t apply. My friend Tom Furphy likes to say that, “It’s always easier to become an online retailer moving into the brick and mortar space than it is to be a brick and mortar retailer moving into the online space.” It’s just easier.

Sylvain Perrier:              100%.

Kevin Coupe:                Because you don’t have … You’re making different choices and you have different kinds of assumptions. So let me ask you, what do you think? If Amazon opens stores, supposedly they’re going to be grocery stores, supermarkets of a kind, they’re going to open a chain of them. If you were Amazon, or you were consulting with Amazon saying, “Here’s what you ought to do,” what would you recommend?

Sylvain Perrier:              Yeah, so for me, the basis of my strategic recommendation would be first and foremost, we know the grocery, household penetration rate is easily above 96% in the United States and it trumps kind of the other segments in retail. It would be very much a non-automated, but immersive experience inside the stores that would only focus on the categories that would give them the truest amount, or deepest amount of penetration.

Sylvain Perrier:              So it could be fresh, it could be frozen, it wouldn’t be as extensive. It certainly wouldn’t be as extensive as a Whole Food, very much focus on private label. Certainly focus on interlacing in some of the other brands that they carry within those.

Sylvain Perrier:              But those stores to me would have to become a strategic hub to continuously drive foot traffic. So delivery, pickup of your items inside the store, all of your Amazon items inside the store, and so on. I don’t think they would be these expansive 35,000, 45,000 square foot locations.

Sylvain Perrier:              Quite frankly, I think at the end of the day where you’re only getting foot traffic in only X number of categories. So I would look at it as something like a hybrid between the Amazon Go stores that they’ve had, some of their own stores that they’ve done to historically, and some of the Whole Foods as something kind of-

Sylvain Perrier:              Stores that they’ve done historically and some of the Whole Foods, so something reinvented. And quite frankly, my other advice to them, I hate to say this, a lot of people disagree with me on this, I would shutter the Whole Foods brand, the box, the retailer itself, and transform it into something new.

Kevin Coupe:                Wow, okay. Ah, yeah, that would, I’m sure that would get their attention. You would shutter the whole thing? I mean you would just close down Whole Foods?

Sylvain Perrier:              I would convert it into something different. Then it’s not called Whole Foods anymore and maybe it’s called Amazon Foods, maybe it’s a different name. And I think the challenge that Amazon is having from speaking to people at Whole Foods, specifically in the Texas office, is that there is still a cultural clash between some of the old school Whole Food guys and some of the Amazon guys. And most people don’t know this, Whole Foods is served regionally.

Sylvain Perrier:              There’s an office in Chicago, there’s an office on the East coast, there’s an office in Texas, and that’s a bit of a challenge for Amazon. They didn’t wholly absorb Whole Foods into the Amazon family. I think this next generation of stores is going to be that. But I think at the same time, how long is this Whole Foods experiment going to last? And what’s happening there, is this part of that next new foray? And if it is great, but how do you absorb Whole Foods in culturally, functionally to say, “Okay, yeah, maybe it’s going to be called Whole Foods or maybe it’s not going to be called Whole Foods.” I would like let’s rip that Band-Aid off and get it over with.

Kevin Coupe:                Wow. Well that, I will say that is the, and I’m not saying you’re wrong, I think that’s the most radical response I’ve heard to whatever issues they may be having at Whole Foods. See now when I think about these new stores, I think I come in from the other direction, I think, “Okay, what are, what is the secret sauce, or what are the secret sauces that Amazon brings to the business?” So Prime, okay? Prime membership, all they’re trying to do is drive Prime membership because they know Prime members spend two to three times as much on Amazon as non-Prime members. So okay, so we need to drive Prime membership. So what I would consider if I were Amazon, at least for a period of time, I’m going to call the store Amazon Prime and only have, only let Prime members in. I would consider-

Sylvain Perrier:              Wow.

Kevin Coupe:                I would think to myself, how am I … By the way that exists, it’s called Costco, right? It’s not, it’s the same deal.

Sylvain Perrier:              That’s true.

Kevin Coupe:                Okay?

Sylvain Perrier:              Yup.

Kevin Coupe:                So it’s not such a radical notion, it happens all the time. Okay. That’s number one. Number two, I think to myself, “Okay, subscribe and save.” A huge driver of dollars in a lot of categories. So I would say to myself, “Okay, how am I going to drive a replenishment model, make that work? How can I adapt that to a physical location to make it easier for people?” I think I would do some of what you are talking about and I’d say listen, the place where you walk into that store, it’s all fresh. It is bakery, it is bakery, it is meat, it is seafood, it is produce.

Kevin Coupe:                And everything else is like a back room dark store. And I’m going to, and if you want that stuff from us, you’re going to get Amazon Prime pricing, in a lot of ways you can get, you can do, you can build into a replenishment infrastructure, but you do not have to walk down the aisle to get Oreos or Cornflakes or Tide. We’re going to have that for you when you get there.

Sylvain Perrier:              Yeah.

Kevin Coupe:                And you can either order it on your computer, on your mobile, in a short period of time, you’re going to order it via Alexa in your car or you’re just going to hand us a list when you walk through, when you walk in the door and do your other shopping. And I would, I would-

Sylvain Perrier:              So essentially move the commodities out of the space?

Kevin Coupe:                Totally. Totally. Because that’s the stuff, their whole premise from the beginning to me has been, we’re going to make it possible for you not to have to go to the store. Right?

Sylvain Perrier:              Absolutely.

Kevin Coupe:                So if you, in so many categories. So, and then I love your idea. Every store would have an Amazon hub, right? So it’s going to, where I can pick up my Amazon packages, I can bring things back to return. So I think that, and then every and every store is going to have an electronics component where we’re going to have all of our Fire TVs and our Echos and all that kind of stuff. So, and just, but only Prime members get to come in.

Sylvain Perrier:              So let me ask a crazy question.

Kevin Coupe:                Okay.

Sylvain Perrier:              So changes, tons of changes in the last little while over at Sprouts Farmer’s Market in terms of executive changes, CMO, CIO, COO, CFO’s left, we have a new CEO in place. My guts telling me based on the latest numbers, it’s ripe to be acquired. Why wouldn’t Amazon not buy it?

Kevin Coupe:                They could. They could. I don’t know. I mean, I’m always very careful about that, about saying Amazon should acquire stuff because there’s an entire community of people out there who do nothing but say things that and “Oh, Amazon should buy Kohl’s Amazon should buy Radio Shack. Amazon should buy JC.” I mean, they just love to have, spend Amazon’s money. And so that’s, my first response to that is, “Okay, maybe they could, but should they?” Right. That’s not always the same thing. It’s the Jurassic Park lesson. Just because you can do something doesn’t mean you necessarily should. I don’t know, to be honest with you, I am not an antitrust attorney. I’m not an anti-trust expert. I suspect that could raise issues though. Somebody would start to ask questions about their dominance in the natural and organic side if they own both the Whole Foods and Sprouts. I think you’re right. I think Sprouts is probably ripe to be acquired. The question, I just don’t know that that’s the move that Amazon’s going to make.

Sylvain Perrier:              Yeah. It may or may not make sense.

Kevin Coupe:                By the way, just to go back for a second, I think because I want to follow-up on something you said before which is really important, well everything you’ve said is important, but one thing that struck me, is I think your point though about them, and this is true at Walmart and this is true at Amazon. Is there are not enough people there who are merchants. And I think that is ultimately going to be a real problem for Amazon in terms of these stores, because they do, everything is algorithm driven and they don’t have merchants. I mean when they started getting into the food business back however many years ago it was, I mean they had people who knew the food business running the side, the food business now. And now I’ve bumped into people at Amazon who are in charge of produce procurement, and they don’t even understand the difference in sizes in grapefruits. And so that that lack of knowledge I think could be a problem for them over the long term.

Sylvain Perrier:              Yeah.

Kevin Coupe:                I think they, it just seems to me they need to understand, they need to invest in that kind of talent if they’re going to make this new experiment work.

Sylvain Perrier:              Yeah. Here’s a good example, I’ve been in this space for, retail tech, for 25 years. Exclusive to grocery 20, almost 20 of those 25 years. And, and here’s how I explain when you walk into any of those boardrooms, you go into any Amazon office, you will meet extremely brilliant people that are subject matter experts in technology, and very good, better than most in taking data to help support a decision. And the other retailer in the United States that is equal to Amazon at that level in the brick and mortar space is Best Buy. I was on the ground with Best Buy helping them capture customer data to design their stores. The, then if you go into, but if you talk to Amazon, you talk to them about food, it’s like they’re still very young and nascent in this space. Or they haven’t brought in, I haven’t seen the talent being brought in from brick and mortar to help them figure this out.

Sylvain Perrier:              And again, I may be completely wrong. When I go to, and when you meet with Walmart, amazing operations people, logistics, they have it down, trucking, they have it down. But when you want to have a conversation with them around customer centricity, putting the customer at the center of the experience, that’s typically the external agencies that they hire out of Chicago or New York. I have never seen it built in to any of their head offices, whether it’s in the US, whether it’s in Canada. When we, when I deal with more traditional retailers, the tier twos and the grocery retail vertical, it very much varies what the expertise is in the business. Right? So if I look at certain retailers, they’ll be very good at logistics, technology. Some of the ones will be very good at marketing, but it’s a bit of a hodgepodge, and there’s nothing wrong with that.

Sylvain Perrier:              I think the evolution of Walmart and Amazon has forced, is starting to force a lot of these retailers to beef up the experience across the board to be better. I’m not sure how much quicker they can go to stay ahead of the curve. And that’s the one thing that certainly keeps me up at night these days. Are our strong regional retailers, the super regionals, as I call them, will they remain relevant moving forward? And I think they need to continue reading your website because that’s certainly the biggest kick in the pants that I’m seeing these days in terms of getting these guys-

Kevin Coupe:                Well thank you.

Sylvain Perrier:              These guys … You’re welcome. These guys to shore up. And to, it’s true and I’m not just saying this so the audience will go to your website. I have retailers in both the US, Canada, and now in France and in Germany. They’re forwarding me your articles, like I don’t read your website. And I’m like, “No thank you. I kind of read it like three hours ago when I was up at 4:00 AM.” And it’s true and it’s, you’re doing, you’re shining a light on certain things that people will only talk about in dark rooms. So I appreciate that.

Kevin Coupe:                Well, I appreciate that. I’ve had people occasionally say to me that I remind them of John the Baptist. And they say, just don’t forget how John the Baptist ended up, which is with his head on somebody platter. So, but so far so good. I mean, nobody’s come after me with a hacksaw yet, so I guess I’m okay.

Kevin Coupe:                You know, I’ve always, listen I think that, and not to blow smoke at you, but you know, I think one of the advantages I’ve always had is I’ve been lucky enough to be, to have been exposed to really smart people, people who are much smarter than I am. And, and I’ve, while I’ve done my fair share of pontificating here on this podcast, I actually listen better than I talk because I think that that’s really key. Listening to people who have much better experience, much broader experiences than I do. And then just try to sort of, trying to, I don’t know, integrate them into my own opinions and then see what comes out at the end.

Kevin Coupe:                But I’m lucky. And listen, I think your company’s doing a lot of great stuff. I think that you’re offering people … I think one of the reasons I was happy to do this, and enthusiastic about it, is I think that when I’ve talked to retailers who have talked to you, and then when I’ve talked offline to you, you are very focused on the retailer brands. How can we help the retailer build and reinforce their brand identity and their brand message? Because at the end of the day, every nook and cranny, and corner, and end cap, and wall and window of every store has to reflect that brand message.

Kevin Coupe:                And then it has to be consistent in whatever message they’re sending out online. And that goes to the ordering process, it goes to the delivery process, up and down the thing. They have to be focused on that brand message, and so the, like I said, one of the things I’ve enjoyed talking to you about is the notion of that has to be front and center, right? What’s your message? Right? It’s not, we’re not going to just tell you what you need to do that’s going to help us build our business. It’s what’s your message? How can we help you get that out there? And that’s usually valuable.

Sylvain Perrier:              Yes. And you know, we treat … I appreciate you saying that. I mean we treat ourselves as a simple virtual extension of the retailer, and philosophically we try to help our retailers understand. Yeah, there’s tons of great choices with technology out there. I mean, we prescribe to crawl, walk and run. And how is this going to help you make money while keeping the customer at the center of the experience? And that’s, and I will tell you that is a very difficult proposition to maintain in the industry because it becomes a challenge because they’ll always be diametrically opposed forces to that to say, “Hey, let’s go here. Or Hey, let’s go that.” But my views, this is quite frankly, a long game, and retailers need to understand that, and you’re not going to turn the tide of anything overnight.

Kevin Coupe:                Well, it’s hard, right? I mean, I’ve, now this is I think the third or fourth movie I’ve referenced, I should say here, I co-wrote a book called “The Big Picture: Essential Business Lessons from the Movies,” available on Amazon. So I love movie metaphors, but I’ll give you one last one here, and that’s “A League of Their Own.” And there’s a moment in the movie where Gina Davis’ characters is quitting, and she tells Tom Hanks, who plays the manager, he says, “Well, why are you quitting?” And she says, “It just got too hard.” And he looks at her and says, “Yeah, that’s the, it’s the hard that makes it worth doing. If it weren’t hard, everybody could do it.” And that’s, to me that’s such a great message. Yeah, it’s hard. Okay. But if you’re going to be in business, you got to do the hard.

Sylvain Perrier:              Absolutely. And those are the most perfect words to end our episode, Kevin, it was a pleasure having you on the show today. And listen, I look forward to more videos, most more posts on morningnewsbeat.com. And if people want to get a hold of you, how can they do that?

Kevin Coupe:                It’s real easy. Go to morningnewsbeat.com or you can send me an email at [email protected] I’m the easiest guy in the world to reach I’m available, you can see Morning News Beat on Facebook, and Twitter, and Instagram, and you know the whole shmegegge as they say. So but you know these are the conversations I love having. We try and have these conversations all the time on Morning News Beat, and I’m just thrilled to have had time to do it with you here today.

Sylvain Perrier:              Thank you so much. Ladies and gentlemen, don’t forget to download our next episode. I’m sure we’ll come up with a saucy topic for you of what’s happening in grocery retail. And if you want to get a hold of us here at Mercatus, just go to mercatus.com and we look forward to seeing you, and talking to you guys over at Grocery Shop in Las Vegas, which I think we’re going to be podcasting. I think our friends from MouthMedia are going to be setting up in our booth, so we’re going to be doing a bunch of shows on site, which should be interesting. Thank you.

Speakers

Kevin Coupe headshot

Kevin Coupe

Kevin is a writer with a unique worldview about the world of business and consumers. He is the author of “Retail Rules! 52 Ways To Achieve Retail Success," a guidebook for competing effectively and efficiently on Main Street. For more than 14 years, he’s had his own website/blog –www.MorningNewsBeat.com– providing what he calls “business news in context, and analysis with attitude” to some 33,000 subscribers all over the world.

Sylvain-Perrier-Headshot

Sylvain Perrier

Sylvain is president and CEO of Mercatus Technologies, and the driving force behind the leading digital commerce platform in grocery retail today.


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