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HOW CPG COMPANIES CAN WIN WITH SOCIAL P.12

TOP WOMEN IN RETAIL P.20

RETAIL LEADER TAKES A ROAD TRIP TO CUBA P.33

BUSINESS INTELLIGENCE fOR ExECUTIvES

Target’s

BIG Bet

CEO Brian Cornell’s $7 billion plan to build a retailer for the next 50 years $12.95 US $15.95 CAN MARCH/APRIL 2017 www.retailleader.com

Retail Leader MARCH APRIL 2017 VOL. 7, NO. 2

THE R-TECH ERA BEGINS There’s a new tech in town. Retailers embrace (R)Tech.

ADVERTISING SALES & BUSINESS Associate Brand Director Elizabeth Cherry echerry@ensembleiq.com Office 310-546-3815 Cell 310-990-9597 Account Executive Matt Kavney mkavney@ensembleiq.com Office 443-203-6379 Cell 202-607-5368

8 FINANCE & CAPITAL MANAGEMENT

YEAR OF THE MEGA-DEAL With three big deals in the books, 2017 is setting up to be a record breaker.

CUSTOM MEDIA

12 STRATEGY

16 TECHNOLOGY & INNOVATION

16 40 COVER STORY

TARGET’S BIG BET Brian Cornell’s $7 billion plan to reinvent the retailer.

FINDING A WAY FORWARD E-commerce angst is pervasive among retailers who know they should be doing more, but aren’t sure what.

54 SUPPLY CHAIN

20 TOP WOMEN IN RETAIL

RISE OF THE CHATBOTS Retailers embrace conversational commerce.

WOMEN TO WATCH Our annual look at top industry executives from the retailer, supplier and service provider worlds.

34 GROWTH AND BUSINESS DEVELOPMENT

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

6 LETTER FROM THE EDITOR

DIGITAL DONE RIGHT Ample rewards await brands able to navigate complexities of the rapidly evolving digital landscape.

SVP, Brand Director Jeff Friedman jfriedman@ensembleiq.com 201-855-7621

CLICK & COLLECT The new normal for retailers.

64 TECHNOLOGY INSIGHTS

66 WHAT’S NEXT

NOT IF, BUT WHEN Declining consumption and emerging technologies ready to rock food retailing.

ISLAND OF OPPORTUNITY What retailers need to know about Cuba.

VP, Custom Media Pierce Hollingsworth phollingsworth@ensembleiq.com General Manager, Custom Media Kathy Colwell kcolwell@ensembleiq.com

ECOMMERCE

MARKETING

VP, Marketing & Communications Bruce Hendrickson bhendrickson@ensembleiq.com Senior Marketing Manager Wendy Duffer wduffer@ensembleiq.com Director of Market Research Debra Chanil dchanil@ensembleiq.com

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

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

Executive Chairman Alan Glass President & CEO Peter Hoyt Chief Operating Officer Rich Riveria Chief Brand Officer Jeff Greisch Chief Financial Officer Len Farrell Chief Buisness Development Officer & President, EnsembleIQ, Canada Korry Stagnito Chief Customer Officer/President of Strategic Platforms Ned Bardic Chief Digital Officer Joel Hughes Chief Human Resources Officer Greg Flores

Retail Leader.com MARCH/APRIL 2017

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

It’s one thing to know what he’s buying today. But what about tomorrow? There’s a science to knowing the answer, and when you work with Nielsen, that science is working for you. Learn more about The Science Behind What’s Next™ at nielsen.com.

letter from the

EDITOR

The R-Tech Era Begins There’s fin-tech, health-tech, insur-tech and even ed-tech. Now the retail industry has r-tech. The phrase “high-tech” entered the national lexicon in the 1960s as the computer and electronics industries took off. Before long, it became a synonym for anything modern and over time various sectors of the economy adopted the “tech” suffix to signify their advanced state of digital affairs. Curiously, the retail industry was not among them even though technology was having a huge impact on retail long before the advent of e-commerce in the late '90s. This situation is about to change in a big way. The Retail Industry Leaders Association (RILA) is on a mission to promote adoption of the word “r-tech” and in early March launched an initiative branded as the (R)Tech Innovation Center at its Arlington, Va., headquarters. The Center has two broad goals: help retailers navigate the industry’s transformation through innovation and spur usage of the word r-tech throughout the retail innovation ecosystem. To accomplish those objectives, RILA decided it would be helpful to have a common definition: “R-tech describes the convergence of retail and technology. An r-tech company embodies the strongest values of both those industries — global and local, nimble, and entrepreneurial — to delight profoundly empowered consumers.” That definition, the creation of the Center and the overall strategy to promote acceptance and usage of the word r-tech is the result of an extensive project begun last summer. RILA’s executive committee in recognition of the massive disruption underway had a long conversation about innovation and put the organization’s staff to work on figuring out what it means and the role to be played by a trade association in an industry undergoing fundamental changes. Top staff members held countless meetings with retailers’ chief innovation officers, venture capital firms, entrepreneurs, futurists, innovation consultancies and they spent a lot of time in Silicon Valley. The result was development of an innovation agenda for the (R)Tech Innovation Center focused on five areas: Conducting authoritative research, retail innovation benchmarking, trends, and analysis. Connecting retailers to innovative technologies, companies, ventures, and other models in the U.S. and globally. Fostering innovation by helping create cultures where it can flourish. Activating innovation by assisting retailers in the process of moving emerging technologies, business models, or use cases from their innovation function into the broader business. Building a reputation for retail in innovation hubs and with policymakers and retail talent. As initiatives are pursued in each area, the reputational impact could be the most significant. Historically, the retail industry was disadvantaged when recruiting talent because it wasn’t viewed as the most progressive or lucrative place to pursue a career. That’s unfortunate because many of those in the industry know otherwise having begun their careers in entry level jobs. Making sure r-tech is part of the conversation about the retail industry will help alter perceptions over time. What’s also going to help is there is serious firepower aligned on the r-tech mission. Global consultancy Accenture is the Center’s founding innovation partner, and two key leadership groups — the (R)Tech Advisory Council and the (R)Tech Innovation Network — are loaded with executive talent. The Council will function like a board of directors with inaugural members including representatives from AutoZone, Best Buy, Coca-Cola, Dick’s Sporting Goods, Energizer Holdings, Facebook, Foot Locker, GameStop, Google, Kroger, Lowe’s, QVC, Target, VF Corporation, Walgreens and Westfield. The Innovation Network group’s role will be more external facing to connect retail executives with retail-focused VCs, incubators and accelerators. It will include representatives from Andreessen Horowitz, Bain Capital Ventures, Commerce Ventures, Greylock Partners, GSVlabs, Shoptalk, Techstars and XRC Labs. Technology has played an important role in the retail industry for a long time. Well before the digital revolution, the most successful retailers were the earliest adopters of new technology solutions to manage their operations and serve customers. They still are and now we have something to call it. RL MIKE TROY Editor-In-Chief mtroy@ensembleiq.com

Retail Leader.com MARCH/APRIL 2017

> FINANCE AND CAPITAL MANAGEMENT

Year of the MEGA-DEAL ACQUISITIONS HAVE ALWAYS REPRESENTED A FASTER PATH TO GROWTH, AND WITH THREE HUGE DEALS ALREADY IN THE BOOKS, 2017 IS SETTING UP TO BE A RECORD BREAKER. > By Mike Troy

Merger and acquisition activity is off to a strong start in 2017 thanks to favorable economic conditions, marketplace dynamics, strong balance sheets and perceptions of a favorable regulatory climate.

Since January, British American Tobacco agreed to acquire Reynolds American Inc. for $49.4 billion, Johnson & Johnson announced a $30 billion deal to acquire Swiss drug maker Actelion and Reckitt Benckiser announced a $17.9 billion deal to acquire Mead Johnson Nutrition. And Kraft Heinz dropped a bombshell when it announced a $143 billion unsolicited offer for Unilever. That offer was quickly rebuffed by Unilever and subsequently withdrawn, but it offered a clear indication that there is an appetite for large transactions. By contrast, the largest deal in the retail and consumer goods world during 2016 was Danone’s still pending $12.5 billion acquisition of Whitewave Foods. In fact, 2016 was a bit of a down year in terms of total deal value even though there were more transactions. Total deal volume increased 19 percent in 2016 compared to the prior year, which saw the retail and consumer sector comprise approximately 12% of total U.S. deal volume compared to 10% in 2015, according to an analysis by PwC. While volume was up, deal value in the retail and consumer sector declined 56 percent to $111.9 billion

in 2016 from $251.6 billion in 2015. The key reason why was fewer mega-deals, defined as transactions exceeding $1 billion, with the most notable being Heinz’ $53.1 billion deal to acquire Kraft in 2015 just two years after Heinz was acquired by Berkshire Hathaway and 3G Global Food Holdings. As a result, PwC data show there were 28 mega-deals with a total value of $73.2 billion in 2016 compared with 32 mega-deals totaling $216.1 billion in 2015. The three mega-deals announced by the midpoint of February this year are worth roughly $100 billion. “While the new presidential administration’s impact on trade and regulatory change is uncertain, factors such as innovation, competition, cross-border deal interest and the availability of cash reserves bode well for deal activity in 2017,” according to Dominic Ricketts, PwC’s U.S. Retail and Consumer Products Leader. A similar view is held by Dan Tiemann, the U.S. Lead for Deal Advisory and Strategy at KPMG, who also sees an appetite for smaller deals. “The fundamentals for a strong deal market continue to persevere, with corporates holding record amounts of cash and interest rates remaining historically low. The C-suite recognizes that acquisitions can enhance their current business models and platforms and reduce the time to market,” according to Tiemann. “We anticipate smaller, technology acquisitions to wrap around all industries. Technology is key to driving growth for all organizations in today’s disruptive environment; it’s needed to expand capabilities, products and services.”

DEAL DRIVERS

Which factor do you think will most strongly drive activity in 2017? 2% 1% Limited organic growth options 1% 14% Need to address the transformation in the marketplace/existing business models

17%

Availability of credit on favorable terms Large cash reserves/commitments

25%

40%

Shifting consumer demands Improving equity markets Opportunities in emerging markets

SOURCE: KPMG Market Pulse Survey of 94 corporate and private equity deal leaders in the U.S. across all industries conducted Oct. 2016.

Retail Leader.com MARCH/APRIL 2017

SP ON SORE D C ON TE N T

A Direct Approach: Hawk Direct Provides Online and Mobile Gift Card Solutions That are Simple for both Merchants and Shoppers

In a time where consumer perceptions of a brand are more powerful than ever, merchants must deliver customers a seamless shopping experience, whether in-store, online or mobile. Blackhawk Network, a pioneer of gift cards, payment tools, and rewards, offers customized solutions for merchants to manage and leverage their branded value and reach more consumers. Branded value products come in many forms, including gift cards, loyalty programs and offers. Because these customer engagement vehicles— especially gift cards—are not a core business for many merchants, the execution and maintenance of branded value programs can be daunting. In a marketplace driven by demand for convenience and ease of use, partnering with a provider that can create a customized site through which merchants sell their own branded value can provide a new revenue-driving solution. Hawk Direct, Blackhawk’s proprietary e-commerce platform, enables purveyors to sell both physical or egift cards individually or in bulk on their sites. Users can customize denominations and card designs to meet their specifications and have the choice of using their own gift card or selling a variety of gift cards from Blackhawk’s extensive network. Many merchants don’t have the technology resources needed to take their gift card program to its highest potential. Hawk Direct can not only white label a merchant’s site, but it can provide access to tools that enable offers that can optimize their program. Companies across many categories including digital entertainment, technology, grocery, restaurant and wellness are now leveraging Hawk Direct to connect to consumers through branded value.

Hawk Direct also supports B2B sales, which is a large and growing market opportunity. Through Hawk Direct, partners can leverage back end services and the Blackhawk operational team can assist with mitigating fraud and regulatory compliance. Blackhawk also manages the customer support function on behalf of the merchant, delivering a true end-to-end experience. Based in Pleasanton, Calif., Blackhawk Network Holdings, Inc. is a leading global stored value and payments provider, which supports the program management and distribution of gift cards, telecom products, and financial services products in retail, digital and incentive channels. Blackhawk’s digital platform enables the management of stored value products, promotions, and loyalty programs across a network of digital distribution partners including retailers, financial service providers, and mobile wallets. For more information, please visit www.hawkcommerce.com.

> FINANCE AND CAPITAL MANAGEMENT A recent KPMG survey of 94 corporate and private equity deal leaders in the U.S. across all industries showed two primary motivations for deal-making: 40 percent of those survey cited limited organic growth options and 25 percent cited the need to address business model transformation occurring throughout all types of industries. Both of those factors have been evident in the market for several years with large established brands facing increased competition from retailers’ private brands and upstart brands that were born online. Other factors driving deal activity in 2017, according to the KPMG survey, include availability of credit (17 percent) and large cash reserves (14 percent). As for factors expected to inhibit deal activity, survey respondents cited a slow growth environment (32 percent), a lack of suitable targets (28 percent), record stock prices (12 percent) and regulatory considerations (5 percent). EY’s 15th US Capital Confidence Barometer also shows deal intentions are at an all-time high going into 2017, with 75 percent of U.S. executives surveyed planning an M&A transaction in the next 12 months, greatly surpassing the long-term average of 45%. Large U.S. public companies have more than $3 trillion in firepower to execute on M&A strategies, according to EY. “Mega-deals are an enduring strategy for inorganic growth, as large companies can quickly broaden their busi-

NEW M&A THINKING AT FTC Retailers and consumer goods companies considering mergers and acquisitions should familiarize themselves with the concept of “regulatory humility” espoused by newly appointed Federal Trade Commission Chairman Maureen Ohlhausen. President Donald Trump appointed Ohlhausen to that role during his first week in office, a move that signals a shift in how the Commission views proposed deals that could have huge implications for the retail industry. She served on the Commission since being appointed by former President Barack Obama in April 2012, when he was obligated to appoint a Republican since only three of the Commission’s five members are allowed to be from the same political party. Prior to FTC, Ohlhausen was a partner at Wilkinson Barker Knauer, where she headed the firm’s FTC practice focusing on privacy, data protection, and cybersecurity matters. Prior to that, she spent 11 years in various staff roles at the FTC. During the past five years on the Commission, Ohlhausen often dissented from the majority and has made it clear that under her leadership the Commission will pursue a new direction and think differently about competition. Her views on these subjects were shared in an essay in the February edition of The Criterion Journal on Innovation titled “The Federal Trade Commission’s Path

Retail Leader.com MARCH/APRIL 2017

ness models by entering new markets with established distribution networks and strong customer bases,” according to Bill Casey, EY Americas Vice Chair, Transaction Advisory Services. “Megadeals will become increasingly complex as companies navigate an ever-changing regulatory landscape, but we are confident management teams will face these hurdles head on to achieve transformational growth.” EY has characterized 2017 as the year of the “genetically modified organization” because the firm also believes companies will seek to alter their corporate genetics through M&A. “The year of the ‘genetically modified organization’ encapsulates our expectation that companies will continue to use highly targeted, precision deals to alter their genetic makeup, often at the molecular level, to future-proof their organizations and help innovation keep pace with the rapid change affecting all industries,” according to Casey. “Executives have an appetite for transformation and diversification and we anticipate 2017’s deal numbers will reflect the need to transact for survival, adaptation and growth.” Accordingly, U.S. companies will increasingly turn to M&A as a solution, with nearly all of the executives EY surveyed who are planning a transaction in the near term focused on deals under $1 billion. RL Ahead.” In the piece, Ohlhausen noted that she planned to continue the agency’s good work to protect competition while advancing principles that the FTC overlooked or undervalued under the Obama administration. “I believe in the power of markets — when free of restraints and unnecessary regulations — to provide the best outcomes for consumers. Antitrust enforcers guard the competitive process. We intervene when firms injure competition, and we advocate for consumers when governments consider anticompetitive legislation,” Ohlhausen wrote. “But equally important is knowing when not to intervene. Importantly, competition enforcers should not intervene simply because they dislike certain market outcomes. Antitrust is about protecting the process, not guaranteeing a particular result at a particular time.” That thinking is at the root of the concept of regulatory humility Ohlhausen had written and spoke of prior to her appointment as chair of the Commission. “My record shows that I favor meritorious intervention. But, I believe, it is critical to wield our competition laws with regard for the limits of our knowledge, the risk of getting it wrong, and the relative costs to society of over-enforcement and under-enforcement,” Ohlhausen explained. “Those considerations inform my lodestar of ‘regulatory humility,’ which I will follow in the months ahead.” In one of the more telling lines from her submission to the Journal, Ohlhausen offered the following assessment: “Arguably the most destructive restrictions on competition flow from the government. Put simply, government regulation is the barrier to entry that may never fall.” Ohlhausen’s full article can be found at www.criterioninnovation.com.

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> STRATEGY

DIGITAL Done Right THE DIGITAL LANDSCAPE CAN BE TREACHEROUS FOR BRANDS, BUT AMPLE REWARDS AWAIT THOSE ABLE TO NAVIGATE COMPLEXITIES OF THE RAPIDLY EVOLVING SPACE. > By Mike Troy

Consumer goods companies who have struggled with digital marketing efforts over the years can look to HEINEKEN USA for inspiration. The brewer has emerged as CPG

leader in the effective use of digital, overcoming challenges unique to the alcoholic beverage category, to engage with shoppers and drive sales.

What makes digital work at HEINEKEN USA has a lot to do with how the structure of the company’s brand groups and their interaction with in-house and agency digital experts to ensure digital is integrated consistently in all manner of brand communications. One of the most recent examples involves a massive initiative called “They Score, You Score,” which Heineken launched March 1 with Major League Soccer (MLS) and the Union of European Football Association’s (UEFA) Champions League. The global undertaking runs throughout the season with a focus on encouraging legal drinking age consumers to purchase Heineken for all soccer viewing occasions and employs a novel approach to drive engagement. Fans are given a chance to win prizes with every goal scored during every MLS and UEFA Champions League (UCL) match, thus the name “They Score, You Score.” To drive awareness of the program throughout the season, Heineken is targeting consumers seeking soccer relevant content by activating national 15 and 30 second match day TV commercials, digital and social content, and a bespoke mobile portal. To sustain engagement and heighten the viewing experience, Heineken asks soccer fans to textto-win after every goal scored to win UCL and MLS gift cards worth up to $50 redeemable for team merchandise. Heineken has also created a mobile soccer hub to be the fan’s portal for all information on both soccer leagues and matches including play schedules, countdown to match days, live score updates, the latest world soccer news, and special offers. Digital and social content will promote the program and prizes (@HeinekenSoccer) driving consumers to the Heineken soccer website. “They Score. You Score enhances the soccer viewing occasion through access to social content, the latest scores, and upcoming games,” according to Ralph Rijks, Senior Vice President with Heineken USA. Heineken left no stone unturned when contemplating ways to engage and activate consumers for its flagship brand and it

Retail Leader.com MARCH/APRIL 2017

employs the same digital rigor to other brands in its portfolio such as Tecate and Dos Equis. The Tecate brand is leveraging boxing’s huge popularity in Mexico with a campaign called “Fight Night Every Night.” On May 6, boxing’s two hottest Mexican fighters — Canelo Alvarez and Julio Cesar Chavez, Jr. — square off in Las Vegas. To capitalize on the buildup to the event, the Tecate brand launched a campaign on March 1 that gives fight fans a digital ringside seat thanks to a mobile app called Bold Punch. To drive downloads and usage of the app billed as a mobile companion for the fight, a high volume of social activity is planned, including posts from the Tecate brand, Golden Boy Promotions, Canelo Alvarez and the “Chicas Tecate,” a group of attractive young woman who make promotional appearances for the brand. “Fight Night Every Night sustains consumer participation by keeping the title bout top of mind with great prizes and, through the Bold Punch app, providing our users the experience of feeling every Canelo punch with vibration on their phone. In addition, the app provides the latest fight info, exclusive videos, fighter bios

SP ON SOR ED C ON TE N T

The Evolution of Joint Business Planning: Automated Capabilities Enable Faster, Easier and More Consumer-Driven Planning Engaging consumers through joint business planning (JBP) has long been a way to align the goals of retailers and CPGs to deliver products that people will like and buy. But that sought-after alignment was often cumbersome and not fully maximized for efficiencies, sales and profitability.

suppliers can store information all in one place to be shared whenever and wherever it’s needed. A retailer category manager, for example, can collaborate with a CPG account manager by looking at a single screen at the same time, something that also allows them to be flexible and do it ten times faster.”

The collaboration between retailers and CPGs wasn’t as much of an issue as the means and effectiveness of that collaboration. Recent advances in technology have made JBP less challenging and less expensive while improving scalability, according to Dipu Mukherjee, Vice President of Dipu Mukherjee Product Management, CPG Solutions, for Symphony EYC, a leading provider of software and services for retailers, wholesalers and manufacturers globally.

Having easily-accessible, automated information helps retailers and CPG partners connect with consumers by making sure that the right assortment is in place at a particular store, leaving room for adjustments. “Automated JBP responds to shopper behavior and changes, and that’s where we want to go as an industry – to best understand the shopper’s behavior and collaborate with one another to provide what they’re looking for,” Mukherjee says.

“We have built a tool to make JBP actionable for users and to also bring a sense of accountability among the key stakeholders. We bring in data and insights for decision makers to act fast, and ultimately, with shoppers in mind,” Mukherjee explains. Symphony EYC has launched its new tool to deliver automated JBP. The program simulates JBP best practices and process consulting, and integrates those with Symphony EYC’s customer-centric retailing platform to provide strategic insights and actionable results. “Traditionally, JBP has been very manual and labor oriented. Another problem is that there are many different ways people want to do it, and they may do it one way one year and another way the next year, making it a challenge to repeat. That lack of efficiency makes people think twice about doing JBP at all,” Mukherjee points out. ”By digitizing JBP, retailers and

Symphony EYC’s JBP tool is also versatile. A mid-sized regional retail chain may want to utilize a template with a Readiness Assessment to gauge the feasibility JBP with its various supplier partners, while a larger, mature retailer may look for other ways to optimize best practices and process consulting via automated JBP. Through a technology-driven JBP process, further innovations in product development, distribution and promotions can result. “This discipline in executing JBP ultimately leads to accelerated growth for both the retailers and CPGs while keeping the shoppers happy. So it leads to a win-win-win proposition for retailers, manufacturers and shoppers,” Mukherjee declares. Symphony EYC is a global leader in delivering benefits to retailers and manufacturers by utilizing customer insights to drive execution. By enabling a more engaged, consistent customer experience and optimized business operations, Symphony EYC partners with leading retailers and manufacturers in over 70 countries delivering increased margins, profits and customer loyalty. For more information, visit http://www.eyc.com/insights/

> STRATEGY and stats, and tips on how to watch the May 6th showdown,” said Juan Carlos Montes, Commercial Market Manager for Tecate. While Tecate is leveraging digital to expand usage and frequency, HEINEKEN USA’s Dos Equis brand has aligned itself with the Cinco de Mayo Mexican holiday widely celebrated in the U.S. To drive awareness, program buzz and conversation, a dedicated TV spot, part of the brand’s newly refreshed Most Interesting Man campaign, will be accompanied by heavy social media including Facebook and Instagram. Additionally, Dos Equis is working with digital vendors Drizly, an alcohol delivery service, and Touchtunes to amplify the promotional activity that runs from late March through Cinco de Mayo. The emphasis HEINEKEN USA places on digital is facilitated by an organizational structure and operating philosophy required for a dynamic category with some unique regulatory challenges. Helping navigate the complexities of the digital realm at HEINEKEN USA is Haley Rubin who serves as the Digital Shopper Media Lead. Unlike some companies, HEINEKEN USA doesn’t have a centralized digital strategy team that pushes programs to the brands. Instead, individual brands such as Heineken, Tecate and Dos Equis are responsible for their execution plans and Rubin works across the brand portfolio in coordination with agency of record MediaVest to lend her digital expertise. She joined HEINEKEN USA three years ago after serving in a digital role at Diageo and with prior marketing experience at Philips and PepsiCo. She leads digital shopper marketing media strategy and implementation across HEINEKEN USA to ensure that digital shopper touch points are embedded within all national, regional, channel and customer level programs. “Whenever there is a brand platform and we have an execution for that platform in the traditional above the line space that includes such things as TV, radio, print and outdoor, we also put in a layer of more targeted shopper media and I lead that across the organization,” Rubin said. For example, with the Heineken soccer program, Rubin and MediaVest worked across the board with the above the line team and the below the line team that is focused on trade spending such as point-of-sale materials or retail ads, to come up with a holistic execution strategy. That strategy includes at what point messages show up in various media and what iteration of the message should show up digitally to support the brand’s campaign. “What we want to showcase in the marketplace is a unified message with different touch points, not different messages and different creatives. Everything used to showcase the brand should be the same down to the fonts and the visuals you choose so there is consistency to the end user. There is a lot of work and coordination among various teams that goes into making —Haley Rubin, that happen,” Rubin said. Digital Shopper Media Lead, HEINEKEN USA The same could be said 14

Retail Leader.com MARCH/APRIL 2017

The Tecate brand has Canelo Alvarez, above, in its digital corner when he battles Julio Cesar Chavez, Jr. on May 6.

of any CPG company’s efforts, but where things become more challenging for HEINEKEN USA is the nature of the category with its inconsistent patchwork of local, state and federal regulations regarding the sale and promotion of beer and a blurring of the line between above the line and below the line advertising. The advertising distinction is key, because different rules apply. For example, with above the line advertising, which includes digital, alcoholic beverage companies have to make sure they are not advertising to those under the legal drinking age. That is easy to do with a company like Facebook that has first party data on its users and knows birthdates, but gets a little trickier with other sites. Conversely, below the line expenditures, including large in-store displays, are not regulated in the same fashion, which is somewhat ironic considering the number of minors who frequent stores where such displays are visible. The gray area that has emerged is in-store displays that have a digital component and discerning which rules apply. “Our lawyers definitely have their work cut out for them and the landscape is constantly changing,” Rubin said. “There is a lot of opportunity with digital because we have such rich content and it is a fun and exciting category with interesting sponsorships, partnerships and brand stories to draw from that can be activated and leveraged. It is also very challenging to navigate the space in a legally sound way and still take advantage of those opportunities to deliver brand messages that connect shoppers to occasions in a meaningful and rich way while being relevant and authentic.” Whether in the physical or digital world, the fundamental shopper marketing principle of “stop, engage and land the sale,” applies to both, according to Rubin. “Stop, engage and land started with shopper marketing and has evolved into the digital space where you apply the same principles, but it is more confusing because of all the touch points and the need to be contextually relevant to different shopper segments,” Rubin said. RL

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> TECHNOLOGY AND INNOVATION

Finding a Way

FORWARD

E-COMMERCE ANGST IS PERVASIVE AMONG RETAILERS WHO KNOW THEY SHOULD BE DOING MORE, BUT AREN’T SURE WHAT. > By Marc Milstein

“Amazon is a threat, but the executives I know are more focused on the new breed of discount competitors. Smaller store formats are beginning to rule.” 16

Retailers are deep into a journey of business transformation and seeking to engage customers in ways unimaginable just a few years ago. Rapid advances in areas such as analytics, social media, inventory optimization, assortment planning, supply chain and fulfillment capabilities give retailers a huge array of variables to consider moving forward.

Since much of the innovation vital for success requires extensive investments, retailers are making difficult choices when it comes to prioritizing new tools, solutions and organizational structures. To gain deeper insights and perspectives into how the industry is managing through and looking to capitalize on these challenges and opportunities, Retail Leader and IRI convened a thought leader roundtable at the National Retail Federation’s annual convention in New York. Those in attendance included a cross section of senior executives from multi-billion chains and small innovative operators. They participated in a wide-ranging conversation around the topic of “The E-Commerce Journey.” Among the areas everyone at the table agreed upon was the need to leverage data much more precisely and involving every area of the business. They also raised the need to better understand customer behavior and more precisely target shoppers via personalization vs. mass marketing. “I think retailers are in trouble. Retailers will continue to exist, but people are looking for confirmation from peers. When we think about customers, we tend to think about six segments of shoppers — but it is more like six million,” according to one executive who shared a view on the personalization trend. As e-commerce and social media play increasingly greater roles in grocery shopping, personalized commerce and marketing is absolutely a requirement, he noted. “It sounds impossible, but we as retailers must accommodate consumers individually. We can beat Amazon but we need to target every consumer. Retailers have more data than anything

Retail Leader.com MARCH/APRIL 2017

else. We know who shops with us. That is how we are going to lock in customers,” he said. Other grocers at the table pointed to ongoing challenges in targeting customers and in transitioning from a traditional store-based business model to one that is much more dynamic and relevant in a mobile and digital age dominated by e-commerce. “We know that 75 percent of shoppers are buying three-to-four times a week. Yet we are still working on a 52-week promotional and pricing schedule vs. customers who are shopping 200 times during the year,” said another supermarket executive. “Once we started tracking where and how people shopped, we quickly realized major changes were needed. The movement of the digital frontier into brick and mortar is vital. We must adapt to the e-commerce shopper.” Meeting new and heightened expectations that are often established by digital innovators outside of the traditional retail industry is key to winning with customers and retaining them. “If we do not cater to the experience — to the dining experience, to the quiet evening at home with children — we will continue to miss out. Look at the growth of fresh items and prepared meals. We have to cater to the growing number of customers looking for high convenience, high quality fresh items,” he added. The discussion also focused heavily on the battle to compete against not only Amazon but also the growing power of other e-commerce niche players and deep discounters. “There are more than one billion websites competing for the attention of shoppers. Amazon announced they are hiring 100,000 people in the next 18 months. What does that say about the competitive environment?” one participant noted. “Amazon is the number one product search engine,” added another. “They are spending $6-$8 billion in R&D.” “There are a lot of problems with Amazon — but one problem they do not have is the ability to price dynamically. They can change (prices) instantly,” said one of the retailers. “We in the supermarket industry change prices

weekly. We need to change the perception that “Our challenge coming into the warehouse and the store and whether Amazon always has the best prices. That worthose deliveries will be early or late.” is not a lack of ries me,” noted another Integrated inventory management processes driven An executive with one of the major chain by big data analytics will impact numerous critical areas, talent. It is a lack including store associate scheduling and labor costs, participants pointed to the growing power of deep discount formats as the biggest threat on driver security, leveraging cameras installed on trucks, of innovative the horizon. providing data to police, and other operational areas. thinking. We “Amazon is a threat, but the executives I “We do not all do the same on logistics but we know are more focused on the new breed of should all be doing better,” according to the executive. need people who discount competitors. Smaller store formats are That is especially true as more and more consumbeginning to rule,” He said. can run digital.” ers rely on digital methods to research and purchase One of the biggest revelations to emerge food and all manner of consumable products. Deterfrom the roundtable was the sheer number mining the best processes for fulfilling orders will be of challenges and decisions confronting the industry and the essential in a future in which Amazon and others move forward emergence of advanced data analytics as key to success. It and evolve in terms of assortment, order processing and deliverwas widely agreed that retailers are scrambling to understand ing product to the consumer’s door or alternative locations. For and leverage key success factors because determining what example, conversational commerce involving devices such as Siri concrete steps to take is confusing. and Echo is a growing concern. “Loyalty cards are relevant and data propels change for super“I can talk in the shower and say I need a razor and it is markets. Some retailers are good at using data, but we are not added to my list just like that,” said one retailer. where we should be,” he said. The fact that such futuristic capabilities — and many others Beyond the wealth of data now available from store and e— are today a reality only served to underscore the vexing situacommerce sales data is the growing wealth of information that is tion confronting many retailers on their e-commerce journey. The coming from the Internet of Things. current operating environment requires retailers to cope with abun“We deploy a huge number of IoT devices, including redant challenges to drive sales and grow profits while attempting to frigerators and freezers. But how we leverage and use that data position themselves for success in a rapidly changing competitive to drive loyalty is another question. We have to have complex landscape that is being transformed by innovation. RL event artificial intelligence, highly engineered systems,” to do that, the executive stated. “Is it worth the investment? Absolutely.” Whether supermarkets will make the investments required to move into the digital and analytics age is less clear given some of the industry’s legacy issues around investing, operations and risk-taking. “CFOs [only] talk about how much the investments will pay off in terms of ROI. Rather than embrace innovation, management suffers from ‘group think’ decision-making rather than focusing on the data out there,” according to one executive. “It is extremely difficult to change the perspective of CEOs, who have been looking at the same type of reports and metrics the past 20 years. You can’t change the mindset,” he noted. Another executive lamented: “No one ever wants to make a mistake at our company. Never! Never! Why? Our challenge is not a lack of talent. It is a lack of innovative thinking. We need people who can run digital.” The role of big data and analytics in inventory management was also cited as key for saving costs but also building a customer-centric operation. “More precise inventory management means getting products into the hands of consumers much more quickly and efficiently, and that means fresher products for consumers,” said an executive. “We need greater visibility into when deliveries are MARCH/APRIL 2017 Retail Leader.com

> TECHNOLOGY AND INNOVATION

REIMAGINING

MULTI-CHANNEL RETAIL

Steve Matthesen joined Acosta, a full-service sales and marketing agency, last fall, succeeding long-time CEO Robert Hill. Prior to Acosta, Matthesen served as President of Global Retail at Nielsen and was a partner at The Boston Consulting Group. Matthesen has an MBA from Wharton, a master’s degree in computer engineering and served in the U.S. Air Force at the Space and Missile Systems Center. He spoke with Retail Leader about retail innovation, evolving business models and digital profitability. Retail Leader: Looking at your background it’s easy to see what former Acosta CEO Robert Hill meant when he said you bring an analytical perspective to your new role.

Steve Matthesen: He’s referencing my time at Nielsen in particular. Nielsen is very much in the data and analytics part of the CGP industry and one of the things we are focused on now at Acosta is better leveraging data and analytics for our clients. We want to make sure we are helping clients optimize which activities we perform for them in the store and do so in the most efficient manner so that they get the biggest bang for the buck. We are focused on how you measure the value and then how do you think about all the ways to improve it. RL: We’ll come back to some of the changes happening at Acosta in a bit, but first share your view of trends in the marketplace because you’ve got a broader and more global perspective than most. SM: A lot of the trends

are quite consistent 18

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globally. The shift really all around the world is back to smaller stores that are more shoppable and this is particularly evident in Europe and gaining momentum in the U.S. The other big trend, in place for some time now, is channel blurring and it is intensifying. Also, the number of stores people shop each month is steadily declining, which reflects changes in behavior because you can get everything everywhere. RL: The trip challenge has been in place for a while, exacerbated now by online. SM: The issue with e-commerce is it is still fairly small in the CPG categories with sales penetration in the single digits. Diapers is the one category that went big first, which makes sense in a way because they ship efficiently. Also, diaper manufacturers had made very aggressive deals because they were experimenting with a new and interesting channel so they leaned into it. At some point, though, people have to make money in the online channel. RL: I feel like we’ve been saying that for a while. SM: I know, but eventually. … Right now you are

seeing lots of experimentation, which is great, but most of those things don’t really pencil out from an economic standpoint. RL: Shoppers reportedly love the ability to buy online, pick up at store. Do you think retailers have figured out that model?

SM: The economics for that are also fairly challenging. Euro-

pean retailers have been doing it longer and they have learned a bunch of lessons. Picking from stores is not very efficient because stores are not distribution centers and so there are some issues with it. In Europe they are starting to evolve it because if you allow someone to buy everything in the store it makes it that much more complicated. The model has started to evolve to restrict the assortment of SKUs available for ordering online. The U.S. players are still in experimentation mode and most of the folks I talk to allow customers to buy everything in the store but they are going to find over time that offering a limited assortment make more sense economically. You are also seeing some retailers re-arrange category locations and aisles so it make it more efficient to pick. That approach can make it more confusing for in-store shoppers so there is a trade-off. RL: Another trend we hear a lot about is “experiential,” as a means to offset shoppers migrating online. What’s your view? SM: It is easy to say and hard to do and retail is one of these areas

where ideas tend to resurface. If you go back 20 years, experiential was a big trend and you had companies like Stew Leonard’s and Wegmans who managed to make the store experience feel different. The challenge for everyone is that grocery shopping is not high on most folks’ list of things they want to do, but we are starting to see a shift of certain demographics, specifically Hispanics, enjoying the grocery shopping experience. So how experimental can you make it so that shoppers are truly engaged, because there are still folks who just want to get in and out? My sense is there is no answer yet. The consumer doesn’t know, the retailer doesn’t know and the CPGs don’t know. Click and collect isn’t the answer, maybe it is an answer. Experiential is one option as e-commerce gets bigger and it is going to be very interesting to see how what stuff people want to buy in store and what they want to buy online and how all that shakes out. You are going to continue to see a lot of experimentation over the next few years and everyone tries to figure out what is actually going to work. It is an interesting time to be a consumer because of the experimentation. RL: Speaking of experimentation, what’s your take on the proliferation of meal kit providers? SM: One of the things folks have started to figure out, which

wasn’t as big a topic five years ago, is that restaurants are real competition for grocers. I would say that meal replacement type services are kind of like restaurants even though consumers prepare the food at home. If you think about it, the biggest competitor to breakfast cereal is an Egg McMuffin so the dynamics have changed where it is less about Kellogg versus General Mills. RL: Competition has changed and you mentioned food service, which is an area Acosta entered a few years ago with a flurry of acquisitions. As a result, your business looks very different than it did even five years ago in terms of services offered.

SM: Our offering has certainly expanded, but the way I think about it is we really do three main things. The first is the customer relationship and selling model where we are actually taking care of the process of selling for our clients. We got into food service partly because many of our existing clients are also in food service and in many cases the products are similar and a lot of the learnings are consistent. That is a big chunk of what we do and the second big piece is in-store. This area has evolved over time and what we are focused on is the in-store experience. The store is an important point to sell people on products, particularly as retail has changed and store labor grows more expensive. The amount of out of stocks and shelves that don’t look the way retailers and CPGs would like them to look is more and more of a challenge so that becomes a bigger value lever for our clients. We also do assisted selling in store, which is important because even in a world of e-commerce, the store environment is a real marketing platform for brands. In many cases that is where shoppers decide what brand to buy and which new things to try. The third thing we do is operate a marketing platform to execute events and provide experiential services. In a world where everyone is getting more digital and looking at their phones, consumers still want to connect with brands and connect with other people. RL: What does that look like in a retail environment? SM: We are seeing demos in more places because the old mod-

el of launching a CPG product through the shared experience of television is no longer effective. The store is a great vehicle to explain products, especially those with more involved feature sets as they benefit from a conversation. RL: Demos can be expensive though when people look at the activity in isolation as opposed to part of a larger go-to-market effort. SM: It is very easy to look at the costs for all types of in-

store activities as costs separate from an ad budget or trade promotion budget. Part of our challenge is to show folks how to think holistically about in-store activities and arm them with enough data to accurately measure the ROI. RL: In an industry facing growth challenges that is relentlessy focused on controlling expenses, how does Acosta add value? SM: We feel really good about our value proposition and

our ability to leverage our scale to execute and deliver outcomes. We touch product, we are in stores, we are negotiating with retailers on behalf of suppliers. We are very embedded in our clients’ business. Ultimately, we are in the more for less business and it all comes down to how do you help customers sell more stuff. RL MARCH/APRIL 2017 Retail Leader.com

> TOP WOMEN IN RETAIL

WOMEN to

WATCH

Retail Leader ’s annual look at top industry executives from the retailer, supplier and service provider worlds. > By Mike Troy

he retail industry is not where it should be when it comes to diversity. No research reports or statistics are needed to make that claim. The lack of diversity is apparent from a glance around hotel ballrooms or convention centers where senior executives gather for industry events. While there is no disputing that further progress is needed, especially when it comes to the C-suite, it is also important to recognize that there are many remarkable female executives having a tremendous impact on business results. That is why Retail Leader decided to highlight a select group of women, some wellknown but others less so, who are making a difference at their

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respective organizations and throughout the industry. As we developed our list of Women to Watch we also felt it was important to think broadly about what it means to be part of the “retail industry.” From our perspective, the retail industry is comprised of three main segments. There are retailers, obviously, but also consumer goods companies and service providers who support retailers and suppliers in a wide range of ways. In the pages that follow, 10 executives from each of those segments are featured for their leadership journey and accomplishments, but also for the future contributions they are expected to make.

> TOP WOMEN IN RETAIL: SERVICE PROVIDERS JULIE GERDES, Vice President of Product Management, Quotient Digital is the hottest sector of the marketing world and Quotient is one of the hottest companies in the space thanks to the efforts of Julie Gerdes. As Vice President of Product Management at Quotient, formerly Coupons.com, she’s been instrumental in planning and executing product strategy for Quotient’s product portfolio, including its consumer, retail and data products such as the consumer savings destination and app, Coupons.com. Quotient works with more than 700 CPG companies and retailers to provide digital coupons and media solutions informed by mobile, online data and combined with in-store purchase data. Gerdes has also played a key role in the development and rollout of Quotient Retailer iQ, which powers the loyalty programs for many leading retailers across the country. It often connects into a retailer’s point-of-sale system allowing access to real-time purchase data to inform marketers’ decisions and effectively target consumers with custom promotions.

BARB RENNER, Vice Chairman and U.S. Consumer Products Leader, Deloitte Tasked to lead Deloitte’s U.S. Consumer practice two years ago, Barb Renner oversees an organization of more than 3,600 professionals that serves more than 90 percent of Fortune 500 consumer products companies. Her role entails driving key sector initiatives that include research and strategies to help clients advance innovation, talent development and global operations. She also serves as an adviser to senior management of Deloitte’s leading clients, which makes sense considering she has nearly three decades of experience serving large multinational clients in a variety of leadership roles. That experience comes in handy as Renner is helping Deloitte’s CPG clients navigate new market complexities such as an influx of competition and shifting consumer preferences to develop strategies for profitable growth. She works directly with consumer, retail and industrial product clients on regulatory, supply chain, technology and processing issues.

LAURA IPSEN, SVP and General Manager, Oracle Marketing Cloud Oracle turned to Laura Ipsen last August when it needed a top flight executive to lead its growing digital marketing platform relied on by retailers and suppliers. As head of the Oracle Marketing Cloud Ipsen is responsible for sales, account management, marketing, and customer support and services for an industry leading solution companies use to connect data, orchestrate experiences, and optimize interactions for individual customers. Prior to her current role, Ipsen was SVP of Oracle’s industry solutions group, leading a team of industry and technology experts that built and enabled solutions across Oracle’s top growth industries. Prior to Oracle Ipsen, served as corporate vice president of Microsoft’s worldwide public sector organization. Prior to Microsoft, Ipsen was SVP and general manager of connected energy networks at Cisco.

JILL STANDISH, Senior Managing Director, Accenture When it comes to business strategy and transformative efforts, Jill Standish is the person to see at Accenture. Last April, Standish was called on to head Accenture’s Retail practice and focus on the business strategy and ongoing development and execution of retail industry strategy for clients. As a recognized leader in the industry, Standish oversees Accenture’s extensive capabilities to guide growth and capability development as well as manage the retail industry client portfolio, with a focus on driving business transformation for clients. Before joining Accenture, one of the leading professional services companies, Standish served as SVP and General Manager for the retail business unit at Oracle and prior to that was global leader for IBM’s Global Business Services retail consulting practice. The consistent theme throughout her career has been to help top global retailers with digital and store transformation projects. 22

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LINDA KIRKPATRICK, EVP Market Development, Mastercard It’s been quite a journey for Linda Kirkpatrick at Mastercard. In her current role, she is responsible for U.S. business development, merchant and acquirer relationships and pricing for Mastercard, which she describes as a technology company in the global payments industry. Kirkpatrick joined Mastercard in 1997 and since then she’s held positions of increasing responsibility. Prior to her current role she helped create the investor relations function ahead of the company’s 2006 initial public stock offering while serving as chief of staff to the chief financial officer. She also served as SVP of Core Merchants where she was responsible for the largest U.S. merchants in the retail, drug and grocery, fuel, travel and restaurant verticals. She also previously served as group head of Franchise Development where she drove global rules and standards, compliance programs, data integrity and dispute resolution management functions and she also led Business Administration and Communications for the U.S.

LOUISE KEELY, Executive Vice President and Global Practice Leader, Nielsen When it comes to helping retail businesses find growth opportunities and gain a deep understanding of key industry drivers, Louise Keely is showing the way. She leads Nielsen’s global retail strategy and her work is advancing the company’s connected retail vision of extreme collaboration among industry partners who rely on a rich network of data sources, technology and analytics to meet evolving consumer demands. With a PhD in economics, she helped found and serves on the board of the Demand Institute, a think tank operated by Nielsen and The Conference Board. She joined Nielsen’s Cambridge Group division in 2005 and prior to that she was a faculty member of the Department of Economics at the University of Wisconsin-Madison as well as a research fellow in economics at Oxford University and at the Brookings Institution.

JILL DYCHÉ, Vice President of Best Practices, SAS Any conversation about growing sales inevitably turns to information technology and analytics, a field in which SAS is highly regarded. As VP of Best Practices at SAS, Jill Dyché (pronounced Duh-Shay) occupies a unique role overseeing a group of business and technology thought leaders who conduct research and engage in deep thinking to help SAS clients solve their thorniest technology issues and enable future value creation. Dyché joined SAS in 2011 when the company she founded, Baseline Consulting, was acquired. She is the definition of a thought leader having authored four books on various IT topics including; eData and The CRM Handbook. She co-authored Customer Data Integration and her most recent book is, The New IT: How Technology Leaders are Enabling Business Strategy in the Digital Age. Published in 2015, The New IT presents new questions, models and answers for business and technology professionals charting the future of their IT organizations.

KIM FITZSIMMONS, U.S. Market President, Chase Merchant Services

LORI MITCHELL-KELLER, EVP and Global General Manager of Consumer Industries, SAP

Payments industry veteran Kim Fitzsimmons joined Chase Merchant Services in October 2014 and ever since has been focused on driving all client delivery activity for the U.S. market including marketing, relationship management and sales for an organization that is one of the leading providers of payment, fraud and data security. The fin-tech world is undergoing significant change and Fitzsimmons has been involved in much of it. Prior to Chase, she served as CEO of Cynergy Data and prior to that she held several leadership positions at First Data, including President of Independent Sales and General Manager of Merchant Services and Community Banks. She also was Principle and Co-founder of EFS Card Services and currently serves as president of the Electronic Transaction Association.

Companies in the retail, consumer products, wholesale and life sciences industries who need help digitally transforming their business have a friend in Lori Mitchell-Keller. As Global General Manager of Consumer Industries since Sept. 2105, Mitchell-Keller has helped leading companies from every region of the world leverage technology to chart a path of growth in their markets. She joined SAP in 2007 as an SVP of business suite applications and has played key roles throughout the organization, including from 2012 to 2015 when she oversaw development of SAP solutions for retail as head of the Retail Industry Business. With an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University and a master’s degree in operations research from Stanford University, Mitchell-Keller also serves on the board of the National Retail Federation and is the executive sponsor of SAP’s Consumer Industries Business Women’s Network.

KATHERINE BLACK, Principal Retail and Consumer Strategy, KPMG Roughly one year ago Katherine Black joined KPMG to leverage her impressive finance and analytics background to help the firm’s clients transform their businesses. As a KPMG principal, she leads efforts to help retailers and consumer goods companies develop and deploy actionable strategies based on unique insights and solutions designed to better serve customers. Black is well-versed in analytics and the power of data to drive results. Prior to joining KPMG, she ran her own firm and also spent roughly a decade with dunnhumby serving the U.K. and Ireland divisions of Tesco. Prior to that, she was with dunnbumby’s U.S. arm helping Macy’s for several years and prior to that was on dunnhumby’s Kroger days during the early days of the relationship. Black also knows finance, having spent time with Fifth Third Bank, Capital One and Wachovia earlier in her career. MARCH/APRIL 2017 Retail Leader.com

S P ON SO R E D C O N T E N T

Q&A

Talking with…

Tom Dixon Chief Marketing Officer, Jack Link’s

the bag, or consumers also can heat up the product in the microwave for 10 seconds, which really brings out the flavors. Jack Link’s AM products offer 9 grams of protein per serving and are available in Applewood Smoked Breakfast Bacon, Brown Sugar and Maple Flavored Breakfast Bacon, Original Breakfast Sausage and Hot & Spicy Breakfast Sausage. We think these products tie in well with the all-day breakfast trends in both retail and foodservice channels. PG: What are some other examples of how consumers’ evolving tastes are leading Jack Link’s to pioneer new products in the meat snack category? C

Headquartered in Minong, Wis., Jack Link’s is the No. 1 meat snack manufacturers worldwide and a familyowned company that represents a heritage of quality and consumer trust. Jack Link’s offers more than 100 premium protein snacks in a variety of flavors, sizes and price points, appealing to nearly every consumer and occasion.

TD: Also in March, we are introducing Jack Link’s Extra Tender. In talking with consumers, we found that many people are looking for more tender meat snacks. The new Jack Link’s Extra Tender meat snacks deliver great jerky taste with a softer bite, and will be available in Original, Teriyaki, Peppered and Sweet & Spicy varieties. Check out JackLinks.com for more information.

Progressive Grocer: How is the growth in meat snacks reflected in today’s market? Tom Dixon: Premium protein snacks appeal to nearly every consumer and occasion, as evidenced by the $1.3 billion meat snack category. As a market leader and the world’s top meat snack provider, we stay very close to market trends and consumer demands to pioneer new segments. We continually develop products that meet consumers’ tastes and needs for all kinds of occasions, such as the growing interest in flame-grilled flavors represented in our line of flamegrilled varieties launched in 2016, or new products slated for introduction this spring. PG: What are some of those newer products that push the envelope for meat snacks? TD: Our Jack Link’s A.M. line of breakfast snacks, which will officially launch in March, underscore the idea of daylong protein snacking. We know many consumers are short on time in the morning but want to start their day with protein that tastes good and is convenient for their lifestyles. Jack Link’s A.M. can be enjoyed as a portable breakfast protein right out of

CMY

> TOP WOMEN IN RETAIL: SUPPLIERS DENISE MORRISON, President and CEO, Campbell Soup Company Denise Morrison may be nearing the end of a CPG career spanning four decades, including the past six as CEO of Campbell Soup Company, but she is still focused on the future. Morrison is managing what is arguably her toughest career challenge to drive near term sales and profit improvements in a challenging market while positioning Campbell for long term success in a world of rapidly evolving shopper behaviors, product preferences and distribution channels. To do so, Morrison is looking beyond the typical five year planning horizon and focusing on opportunities driven by the intersection of real food, health and well-being and technology. These forces are evident in key initiatives at Campbell far different that when Morrison began her CPG career in 1975 with Procter & Gamble. She held positions of increasing responsibility at PepsiCo, Nestle USA, Kraft and Nabisco before joining Campbell in 2003.

AMANDA SOURRY, President, Foods, Unilever Earning an MBA in modern and medieval languages might seem an odd foundation from which to launch a successful career in the CPG world, but that is what Amanda Sourry did. She joined Unilever in 1985, held positions of increasing responsibility during a nearly 30-year career, including 17 years in the U.S., and was called on to lead the global company’s food business in 2015. In that role, Sourry heads a $15.5 billion division that accounts for about 24 percent of Unilever’s 2016 annual sales of roughly $65 billion. On her watch, the food business has delivered an improved performance. However, Sourry has concerns in addition to volume growth. Unilever’s scale means Sourry spends much of her time thinking about the company’s role in a global food industry facing the challenge of providing nutritious and sustainable food for a global population expected to total 8.5 billion by 2030.

STEPHANIE GALLO, Vice President of Marketing, E. & J. Gallo Winery Innovative new products fuel growth in the retail world and on that front the E. & J. Gallo Winery doesn’t disappoint its retail partners or their mutual customers. As Vice President of Marketing for the world’s largest family owned winery, Stephanie Gallo leads worldwide marketing efforts for prominent brands in the company’s Popular Business Unit, including Barefoot and Gallo Family Vineyards. Under her leadership the Barefoot brand has grown from roughly 500,000 cases sold annually when it was acquired in 2005 to become the largest bottled wine brand in the world. She also plays an integral role in the development of new products, including successful brand launches such as Naked Grape, Vin Vault and Dark Horse. Gallo is carrying on the tradition of innovation and stewardship that her grandfather and great uncle established more than 80 years ago when they founded the company. For example, she has pioneered the winery’s online advertising, social media programs and event marketing initiatives. 26

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TALBOTT ROCHE, President and CEO, Blackhawk Network Leading prepaid and payments network provider Blackhawk Network is a global payments innovator in the fin-tech world. In her role as president and CEO she oversees Blackhawk’s aggressive growth strategy and expanding product and solution portfolio and directs all Blackhawk consumer and incentive business units. Roche earned an economics degree from Stanford and spent time at Clorox and News America Marketing before joining Blackhawk as an SVP in 2005 when the company was still a division of Safeway. She became president in 2010, Blackhawk was spun out of Safeway via a public stock offering in 2013 and Roche was named CEO in February 2016. In the past five years, Roche helped Blackhawk triple its business from a gift card network in one grocery chain to a global prepaid and payments company that has expanded its scale and reach via nine multinational acquisitions.

MICHELE BUCK, President and CEO, Hershey Michele Buck joined an elite group of female executives on March 1 when she succeeded J.P. Bilbrey as Hershey’s CEO. Now she is intent on accelerating growth at the $7.4 billion company through investments in new products and related marketing plans executed by a recently restructured senior leadership team. Buck expects Hershey to outpace growth of the broader food group in what remains a challenging environment. It became apparent in recent years that Buck would succeed Bilbrey as she advanced from her role as Hershey’s president of North America to become EVP and COO last year with added global responsibilities. She joined Hershey in 2005, and held roles such as chief growth officer and chief global marketing officer. Prior to Hershey, Buck spent 17 years at Kraft/ Nabisco in numerous senior positions and at the Frito-Lay division of PepsiCo.

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> TOP WOMEN IN RETAIL: SUPPLIERS LINDA WELLS, Chief Creative Officer, Revlon Mass market retailers who offer Revlon’s expansive product lineup will notice some changes this year as Linda Wells assumed the role of chief creative officer in February. Wells is an icon in the beauty world where she was the founding editorin-chief of Allure and spent 25 years with the brand. She is responsible for curating the look and feel of Revlon’s brands across all consumer touch points including advertising, product innovation, packaging, digital and social presence, and point of sale. Her addition follows Revlon’s September 2016 acquisition of Elizabeth Arden, which created a $3 billion beauty company. That deal led to a more recent introduction of a new organizational structure focused on four global brand teams including Revlon, Elizabeth Arden, Fragrances and Portfolio Brands. Wells works with the marketing, product development, and research and development teams to support the brands’ strategic growth priorities.

SUSAN HART, Global Retail Practice Leader, Spencer Stuart Susan Hart may not fit the retail industry’s classic definition of “supplier,” but she has been a supplier of talent to the retail and consumer goods industry for nearly three decades. As co-leader of Spencer Stuart’s global retail, apparel and luxury goods practices, Hart is who top companies turn to when it is time to fill key senior leadership positions. She specializes in the recruitment of CEOs and board directors within the consumer and retail sectors. In a 29 year career at Spencer Stuart she has completed more than 800 executive and board searches globally for top consumer, fashion and luxury, mass retail and specialty lifestyle brands. She works with clients to identify, assess and recruit senior executives and board directors, manage succession projects and advise on governance matters so that organizations are prepared for their future leadership needs.

MARY LYNN FERGUSON-MCHUGH, Group President, Global Family Care and Global Brand Creation and Innovation, P&G Ventures, Procter & Gamble Three decades after joining P&G, Ferguson-McHugh leads one of the most important business units at the world’s largest consumer goods company. With billion brands such as Charmin, Puffs and Bounty under her purview, Ferguson-McHugh plays a key role in a P&G organizational structure that has the company focused on 10 product categories including about 65 mega-brands. She leverages a vast range of experiences in brand building, innovation and consumer insight to find new sources of growth in mature categories subject to intense competition. It is a familiar role for Ferguson-McHugh, having previously held the position before serving as Group President for Europe from 2010 to 2014. She joined P&G in 1986 after earning an MBA at the University of Pennsylvania’s Wharton School, initially serving as an assistant brand manager for Vicks NyQuil.

ANGELA AMAN, CFO, Brixmor Property Group Suppliers to the retail industry take many forms and that is the case with Brixmor. Nearly three fourths of its 512 shopping centers are anchored supermarkets, with Kroger, Publix and Dollar Tree among the top tenants. Since joining Brixmor in May 2016 Aman has been busy remediating material weaknesses in financial reporting that forced the departure of her predecessor and Brixmor’s CEO. The company’s books are now in order and a commitment to transparency and disclosure has Brixmor back in the good graces of investors and regulators. Aman joined the company from Starwood, where she served as CFO for less than a year, but prior to that she served four years with Retail Properties of America and helped the company go public. She began her career in the investment banking group at Deutsche Bank after earning an economics degree from the Wharton School of the University of Pennsylvania. 28

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ESI EGGLESTON BRACEY, President, Coty Consumer Beauty When Coty acquired Procter & Gamble’s beauty business last year it gained more than a roster of brands, which enabled it to double in size and become the world’s third largest beauty company. It also gained the expertise of Esi Eggleston Bracy who previously led P&G’s COVERGIRL and Max Factor businesses in 80 markets. She now oversees Coty Consumer Beauty, the largest of three business segments, accounting for nearly half of the company’s annual sales of $9 billion. Her appointment to the role was announced in November 2015 after Coty and P&G agreed to the deal in July of that year. However, the transaction didn’t close until last October which means Bracy’s impact on the combined organization and its portfolio of mass market staples such as Clairol, COVERGIRL, Max Factor, Rimmel, Sally Hansen and Wella will be felt this year.

> TOP WOMEN IN RETAIL: RETAILERS ANGELA AHRENDTS, Senior Vice President, Retail, Apple Apple set the benchmark for store experience more than a decade ago and now Angela Ahrendts is focused on setting a new standard for others to emulate. She oversees a network of nearly 500 Apple stores, as well as the company’s next-generation store initiative, with newly redesigned locations launching all over the world. Since joining Apple in 2014, she has integrated Apple’s physical and digital retail businesses to create a seamless customer experience for over a billion visitors per year with the goal of educating, inspiring, entertaining and enriching communities. She has helped Apple employees set the standard for customer service in stores and online, delivering support from highly trained Geniuses and expert advice from Creative Pros to help customers get the most out of their Apple products. Ahrendts joined Apple from Burberry.

CARMEN BAUZA, EVP CMO at HSN Carmen Bauza joined HSN last November as chief merchant and expectations are high with her diverse background that she will be able to ignite new growth at the $3.6 billion retailer. Before HSN, Bauza spent a decade at Walmart as a senior merchandising executive signing celebrity deals and driving collaborations across several categories including baby consumables, OTC and chemical and paper goods. Her division was one of the largest in the company with a multi-billion dollar sales volume. Prior to joining Walmart, Bauza oversaw seasonal retail for L Brand’s Bath and Body Works division, and was responsible for the launch of the new beauty store concept, C.O. Bigelow. Before joining L Brands, she was with Five Below, Inc. where she led all merchandising initiatives for planning, pricing, distribution and sourcing. During her time at the Walt Disney Company, she served as a senior merchandising executive.

HANNEKE FABER, Chief E-Commerce and Innovation Officer, Ahold Delhaize Hanneke Faber is the personalization guru. Her focus on customization underpins plans at Ahold Delhaize to double e-commerce revenues by 2020. Faber has been leading the global online business and customer loyalty initiatives at Ahold by leveraging personalized shopping with food lists, coupons and even personal health dashboards. Her efforts are producing double-digit sales growth at Peapod, the oldest and largest online grocer in the United States. Last year Faber oversaw the launch of Peapod’s Local Farm Boxes program, which delivers fresh produce weekly from local farmers, similar to a Community Supported Agriculture farm share. Before joining Ahold in 2013, Faber was vice president and general manager of Global Pantene, Head & Shoulders and Herbal Essences at Procter & Gamble. She began her career at Procter & Gamble in 1992.

ANN-MARIE CAMPBELL, Executive Vice President, U.S. Stores, The Home Depot Ann-Marie Campbell knows Home Depot inside and out. From humble beginnings as a cashier in South Florida in 1985 to her current role leading a 2,000 store operation with nearly 400,000 employees, Campbell is a major force helping the $95 billion retailer execute its omnichannel growth strategy. Named EVP of U.S. Stores a little over a year ago, Campbell has been entrusted to make sure stores, e-commerce and distribution centers are seamlessly integrated to keep customers happy and sales growing. The strategy has been working as U.S. same store sales rose 6.2 percent in the most recent fiscal year. One of the more remarkable aspects of Campbell’s career is the native of Jamaica rose to the top of one of the most masculine of retail segments and she is also one of the nation’s most senior African-American retail executives regardless of gender. 30

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KATHLEEN MCLAUGHLIN, Chief Sustainability Officer and President, Walmart Foundation Although she is neither a merchant nor an operator, Kathleen McLaughlin occupies what is arguably one of the most significant positions at Walmart. In her role, she leads the retailer’s aggressive sustainability agenda, including newly established goals to achieve science-based emission reduction targets by running on 50% renewable energy, and to expand sustainable sourcing to cover 20 of its key commodities — all by 2025. Last summer, Walmart committed to source an additional $250 billion in products made, assembled or grown in the United States over the next 10 years. In concert with that, Walmart is also making a $10-million investment in a U.S. manufacturing innovation fund, partnering with universities and other organizations to build new ways of manufacturing. As chief of the Walmart Foundation, McLaughlin helped the company surpass over $1.4 billion in giving worldwide, including $1 billion of food donations.

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> TOP WOMEN IN RETAIL: RETAILERS ERIN SHARP, Group VP of Manufacturing, Kroger Erin Sharp is responsible for 7,000 associates across Kroger’s network of 38 manufacturing plants, as well as sourcing and planning for all of Kroger Corporate Brands grocery products. Those plants make about 60 percent of Kroger-branded food items, from peanut butter and pet food to dairy and bakery items. Kroger’s private label sales hit $20 billion in 2015. Kroger’s Simple Truth line has been hugely successful under Sharp’s watch. Sales from the brand hit $1.5 billion in 2015, and the brand is quickly becoming more popular as a lower price alternative to competing organic products. Sharp joined Kroger in 2011 as Vice President, Operations for the Manufacturing Division. She was promoted to her current role in 2013. Before joining the company, she served as Vice President of Manufacturing for Sara Lee Corp.

HELENA B. FOULKES, EVP CVS Health and President CVS Pharmacy Helena B. Foulkes began working at CVS in 1992, rising through the ranks to become the architect of customer-engagement programs and digital initiatives that have been key to CVS’s $81 billion in annual retail/LTC sales. Foulkes has responsibility for all aspects of the company’s retail business including its more than 9,600 retail stores,18 distribution centers and e-commerce sites, as well as merchandising, supply chain, marketing, real estate, front store and pharmacy operations. She oversaw the launch of the ExtraCare card, a hugely successful membership program offering savings to participants. Foulkes also led the creation of CVS’s Pharmacy Advisor program, which offers counseling in stores and by phone to Caremark members with chronic conditions. Recently Foulkes led the launch of CVS Curbside in about 4,000 stores.

STEPHENIE LANDRY, Worldwide VP for Amazon Prime Now In her 11 years at Amazon, Stephenie Landry has accomplished many things, but one of the most significant was development of the Prime Now concept that reset shopper expectations of convenience. Launched in 2014, the one-hour delivery service now available in 49 cities across seven countries has disrupted the retail industry by delivering product selection, price and immediacy to consumers’ doorsteps. The mobile application allows Amazon Prime members to get 1-hour delivery on tens of thousands of products, and the list of options keeps growing. Prime Now has even expanded to include restaurant delivery. Landry was a founding team member of Amazon Fresh (fresh grocery delivery), and she led the conception and launch of several initiatives including Amazon Student, Amazon Mom, and Prime Pantry. Landry first came to work at Amazon as an intern in 2003.

PRAMA BHATT, VP of Digital and E-Commerce, Ulta Beauty Prama Bhatt leads the fastest growing business at one of the nation’s fastest growing retailers. Ulta Beauty will surpass 1,000 store locations in 2017, but what is most impressive about the company’s ascent and market share gains is the growth of digital. A key driver of the company’s astounding 15.2 percent same store sales growth during the nine months ended Oct. 29, 2016, was an e-commerce business that grew 50.8 percent to $190.5 million. As Vice President, Digital & E-Commerce at Ulta Beauty, Bhatt is responsible for overseeing the areas of online merchandising, digital marketing, site experience, mobile apps and e-commerce operations. She has led various retail e-commerce teams for over 10 years, delivering e-commerce growth and driving omnichannel capabilities. Prior to joining Ulta Beauty in 2014, Bhatt held e-commerce leadership roles at Kenneth Cole Productions and Toys’R’Us. 32

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ORNELLA BARRA, Co-Chief Operating Officer, Walgreens Boots Alliance Hers may not be a household name in U.S. healthcare, but Ornella Barra is one of the industry’s most influential executives. As co-COO of Walgreens Boots Alliance, Barra oversees international retail and global brands for WBA, as well as the company’s Pharmaceutical Wholesale division — which extends to 200,000 healthcare providers in 19 countries — as well as supply chain, communications, HR and IT functions. Prior to the Walgreens Boots Alliance merger, Barra was Chief Executive Wholesale and Brands of Alliance Boots. A pharmacist by training, Ornella Barra started her own company in the 1980s before merging it with a firm led by Stefano Pessina. The partners built a pharmacy empire in Europe that would eventually lead to a merger of Walgreens and Alliance Boots in 2014, with Pessina as CEO of the combined company. Last year, Barra was promoted to coCOO, a move that could be part of an eventual succession plan for Pessina. RL

> GROWTH AND BUSINESS DEVELOPMENT

Island of

OPPORTUNITY

WHAT RETAILERS NEED TO KNOW ABOUT CUBA. > By Gina Acosta

The normalization of diplomatic relations with Cuba in December 2014 and

the death of long-time dictator Fidel Castro last November were huge developments for the isolated nation. The allure of a market with 11 million residents – three times the size of Puerto Rico – has businesses eager to tap an essentially greenfield opportunity tantalizingly close to the United States. However, all is not as it seems when it comes to the Cuban opportunity, as Retail Leader Managing Editor Gina Acosta discovered. The Miami native recently spent a week in Cuba with her mother, a Cuban native, who was returning for the first time to the country she fled in 1959 at the age of 8.

The phrase, “Asi es aqui,” is heard often in Cuba and it doesn’t take long before visitors arriving at Havana’s Jose Marti International Airport learn its meaning. Terminal 2 at the airport is dirty, dimly lit and there is nowhere to buy food or drinks. It takes three hours for luggage to clear customs and more than an hour to hail a vehicle that passes for a taxi. A dilapidated hotel room can cost $500 a night, basic items such as toothpaste and shampoo are impossible to find, and locals wait in line more than an hour for melted ice cream. Using a cellphone or credit cards and accessing the Internet are extremely difficult. The tourism industry tends to glamorize Cuba’s lack of modern conveniences and decaying infrastructure the way a real estate agent describes a small old house as “quaint”

or “charming.” But make no mistake, visitors accustomed to the modernity of life in the United States and other countries are met with frustration at every turn in Cuba. Why? Cubans simply shrug and offer, “Asi es aqui,” as an explanation for all manner of inconveniences. It is a response learned during nearly six decades of communist oppression and the phrase loosely translates to, “That’s how it is here.” It is a safe response, a defense mechanism really, to offer when a truthful explanation would touch on the many failings of the still-feared Castro regime.

A NEW ERA? While there have been some encouraging recent developments, all signs point to a long and rocky road ahead to a free market economy in Cuba and truly normal relations with the United States. This much becomes evident after spending a week criss-crossing the island, staying in people’s homes and resorts, all the while struggling to find gas, food and water in a country devoid of U.S.-style retail.

The Cuban opportunity looks appealing long term, but early entrants to the market face numerous challenges.

MARCH/APRIL Retail Leader.com

> GROWTH AND BUSINESS DEVELOPMENT why we waited more than an hour. When a vehicle did arrive it was a noisy, beat up 1960s Fiat with no seat belts and a broken exhaust system. All of those classic cars running around Cuba contribute to choking levels of smog. At the car rental office in Havana, the agency was sold out of cars (even though we had pre-paid for a compact Kia months in advance). We had to take another cab to the hotel and wait for someone from the agency to call when a vehicle was available. Experienced travelers know to go with the flow when encountering difficulties in foreign lands, but in Cuba nothing is as it seems or should be and everything is negotiable (especially for those with dollars or euros). One of the things that is clear, especially from the back of a speeding cab, is the lack of retail. The ride from the airport into the city reveals no modern malls, freestanding stores, restaurants or gas stations. Even if there were, driving to them would be an adventure because the roads are a disaster, with giant potholes and all manner of obstacles: pedestrians, bicyclists, horses, oxen, cattle, dogs and pigs.

NEXT RETAIL FRONTIER A freshly butchered hog brought to market on the back of large tricycle speaks volumes about the state of Cuban supply chains and food safety practices.

It wasn’t until 2014 that Cuban President Raul Castro announced a “new course” in U.S.-Cuba policy. That year, the Obama administration eased restrictions on travel to Cuba for Americans whose trips fit into one of 12 approved categories, including educational, religious and humanitarian reasons (the Treasury Department still prohibits U.S. travelers from partaking in “tourist activities” on the island). Since then, embassies have opened in Havana and Washington. U.S. cruise ships dock regularly in Havana and there is a new Sheraton hotel. Ironically, business executives now have a familiar place to stay, but for the vast majority of U.S. companies, doing business in Cuba is still illegal. The trade embargo imposed in 1960 by the United States remains in place, as is the Helms-Burton Act (passed in 1996), which only tightened the rules by punishing foreign companies that trade with Cuba. Despite the embargo, Cuba is a hot tourism market these days. The island welcomed a record 4 million visitors in 2016, a 13 percent increase over the previous year that also was a record; about 614,433 of those visitors in 2016 were Americans, a 34 percent boost, according to the Cuban Ministry of Tourism. And the increase in visitors is certain to continue in 2017. Two more cruise lines — Norwegian and Royal Caribbean — have announced trips for 2017. Car rental prices and nightly rates at hotels have quadrupled, especially in high season. Yet, Cuba is not equipped to accommodate the tourist hordes that are straining the country’s infrastructure and putting pressure on the food supply and transit system. There are too many tourists and not enough cars, for example, which is 34

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Does Cuba really represent a new growth opportunity for U.S. retailers and if so, what does the timeframe look like? The answer is, like Cuba itself, very complicated. For starters, now that Fidel Castro is no longer in power, his brother Raul’s free market reforms are expected to fuel growth of the private sector, which could translate into wage growth and spending power for many Cubans. And after Raul Castro dies (he is 85), his hand-picked successor, Miguel Diaz-Canel, 56, has signaled softer positions on economic reforms. Cuba is also one of the fastest growing and most promising economies in Latin America. According to the CIA’s World Factbook, Cuba has one of the largest economies in the Caribbean. Estimates vary widely regarding the outlook of Cuba’s GDP growth (an estimated GDP of $82 billion as of 2014) and mostly depend on government reforms and geopolitics. As the normalizing of relations spurs many U.S. retailers to take a look at Cuba, the trade embargo still poses a big problem. Although exceptions to the embargo are being leveraged by U.S. companies (the Sheraton in Havana is a good example), most future contracts would be contingent on ending the embargo. As a result, the most immediate opportunity for U.S. retailers and brands is to market to the tourists flocking to Cuba. Indeed, during seven days on the island, it was clear that it’s not just cars that are in short supply. Cuba still exhibits many of the characteristics of a communist state: food shortages, empty shops and long lines. And these deficiencies are being amplified by the boom in tourism. Basic staples such as bottled water and ice are hard to come by. Most bodegas, or grocery stores, have empty shelves. Fresh produce and meats are non-existent (these items tend to be purchased in open-air markets). Or the stores may have full shelves stocked with only fruit juice and hair gel. The assortment seems driven by what is available rather than by what shop-

> GROWTH AND BUSINESS DEVELOPMENT tioning regulatory structure before most U.S. retailers would feel comfortable establishing a presence.

ROADS TO NOWHERE

This newly opened Zona+ store, the only one in Cuba, is operated by a branch of the Cuban government and is considered the most modern retail establishment on the island.

pers’ needs and wants are. Freezers don’t freeze, and items such as ice cream are sold defrosted (according to locals, ice cream, even melted, is a very popular item). “I have to go to the one shop at the airport to buy feminine napkins,” said Margarita Alvarez, a resident of Havana that we met at a restaurant. Alvarez said she knows one entrepreneur who runs a restaurant, or paladar, in Havana and has to fly to Mexico to buy food at Sam’s Club because of shortages. U.S. retailers could set up shop in the touristy areas in Cuba and at the airports. But there are many, many challenges for retailers, and most of them aren’t even embargo-related. One of if not the biggest obstacle to retailing in Cuba is the current political regime. Retail business in Cuba is mostly a state-run enterprise. When you walk into one of the few restaurants or stores, they are government entities, such as the rental car agency and the grocery stores. Although in the past few years, the Cuban government has allowed some entrepreneurs to operate food carts, restaurants and vacation rentals, most commerce remains nationalized. PricewaterhouseCoopers said in a 2015 report that the potential for retail investment in Cuba is substantial but “dependent on government reforms.” In Cuba’s current restrictive system, there is a lack of administrative and judicial transparency, as well as much corruption. Several Cubans we spoke to who work in tourism-related retail jobs said that “gaming the system” is the only way to get ahead there. Meeting workers who boast about skimming at their retail jobs is common. Corruption is often a problem in less developed economies, and is likely to be a huge deterrent to U.S. business looking to establish a presence. The Cuban government under new, more progressive leadership would need to reverse a culture of corruption and establish a func36

Retail Leader.com MARCH/APRIL 2017

Even the most intrepid retailers willing to look past corruption, Cubans’ lack of spending power and a still oppressive government would be faced with a major operational challenge. The infrastructure in Cuba is beyond crumbling and in a state of crisis, especially when it comes to the roads. We drove from Havana to Cienfuegos to Trinidad to Varadero to Viñales and back to Havana, and we covered about 1100 kilometers, or nearly 700 miles. The highways, warehouses and rail lines are in deplorable condition and cannot handle heavy volume. There are so few gas stations (and during our visit half of them either had no power or no gas), that ensuring your vehicle has fuel is a constant source of anxiety. As far as the availability of commercial structures in Cuba, currently they are too small or dilapidated to accommodate U.S.-style retail. While U.S. brands have some recognition in Cuba thanks to tourism, the country currently prohibits all marketing to consumers. No TV ads, no product billboards, no retail signage whatsoever is allowed in Cuba. Political marketing, however, is perfectly legal. Socialist and communist billboards that say, “Embargo: The longest genocide in history,” line the roads while Cuban hitchhikers beg for rides wearing T-shirts from the Gap and carrying reusable bags from Walmart (which reportedly sell for $10 apiece in the black market in Havana). Indeed, many Cubans already have a certain level of U.S. brand awareness — a good head start for many companies.

WHERE WE GO FROM HERE So what could a Cuba retail strategy look like? First of all, retailers should be aware that geopolitical challenges remain, on both sides of the Atlantic.

An oddly configured interior offering a limited assortment of non-U.S. brands fails to live up to the Zona+ tag line of “Lo que necesitas y mas,” which translates to “all you need and more.”

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> GROWTH AND BUSINESS DEVELOPMENT On the U.S. side, there is no guarantee that the trend toward warmer relations will continue. President Trump has threatened to reverse Obama’s actions to normalize relations with Cuba, and the few U.S. deals that have gone through might be in jeopardy. On the Cuba side, the nation would need to continue to reform its economy and system of government for the island’s economic potential to grow. For retailers looking for immediate opportunities, focusing on the tourists swarming Cuba should be Priority No. 1. Discounters such as Dollar General or Walmart would be overrun with tourists and locals, assuming the companies could cope with the corruption and supply chain deficiencies. It is also conceivable that an Internet-first strategy becomes the quickest path to retail success in Cuba (presuming that Cuba follows a retail development pattern similar to the United States and overlooks the experience of other developing nations). In many parts of the world, China and India for example, retail development has leapfrogged the decades-long evolution that unfolded in the United States. Assuming the widespread availability of the Internet and smartphones, Cubans may discover mobile and chat commerce and crowdsourced home delivery before the first big box store opens. Either way, one thing that’s for sure is there is tremendous pent-up demand for low-cost food and consumer

A WHOLESALE PERSPECTIVE One of the most popular things to do in Cuba for both Cubans and tourists is dining out at private restaurants known as paladares. Until about six years ago, restaurants and other small businesses were operated strictly by the government. Then President Raul Castro loosened restrictions on small businesses, and many have flourished — especially the restaurants. Indeed, it’s hard to get a table at many Havana paladares, with some requiring reservations weeks in advance. But many diners at these paladares might be surprised to find Member’s Mark-brand salt and pepper shakers on the tables. Or to learn that much of the food served in these restaurants comes from warehouse club retailers based in the United States. Despite rules mandating that owners of paladares must buy their supplies only from state-run stores, many of these proprietors routinely fly to the United States to shop at Sam’s Club or travel to Jamaica to shop at PriceSmart. Why? There simply isn’t enough food in Cuba to supply these businesses and there are no food wholesalers. In Cuba, government entities are the only ones able to import and acquire goods at wholesale, and wholesale has been a critical demand of restaurant owners. The Cuban government has promised to set up wholesale markets for entrepreneurs. In the meantime their only options have been the same retail stores where

Retail Leader.com MARCH/APRIL 2017

products judging from the lines at a shop called Zona+. The store, operated by a government-owned corporation called CIMEX, is similar to a Sam’s Club but with a much smaller footprint: about 20,000 square feet. It is located in a tony Havana neighborhood, wedged between two private homes. In December, the lines were out the door. The shelves were packed with a limited assortment of low-cost European brands, and Cubans and tourists alike were buying up as much as they could. After traveling many hundreds of miles and visiting shops, this was the only store with adequate lighting, stocked shelves and employees offering to help customers. It was the closest thing I saw to U.S.-style retail and it hints at the potential that exists on an island that has been locked in a time capsule. To understand that potential, U.S. retailers should hop a flight to Havana, stay at the Sheraton and then venture outside the city to get a sense of the pace of daily life and the operational challenges that exist. Cuba won’t stay the way it is today forever, but the pace of change is impossible to gauge accurately so the best strategy when it comes to Cuba is to simply have one. The day will come when U.S. retailers and brands are part of a Cuban economic revival and in the process they will give a new, more optimistic meaning to the phrase, “Asi es aqui.” RL the general population shops at high prices, or flying to other countries on shopping trips. It’s an opportunity that club retailers such as PriceSmart are in a perfect position to leverage. The San Diego-based operator of small format warehouse clubs in Latin America and the Caribbean recently acquired a 330,000 square-foot distribution center on the outskirts of Miami. In addition to the new DC, PriceSmart says it plans to retain approximately 102,000 square feet of space from its currently occupied leased building also located near Miami where it will continue to operate a recently expanded refrigerated and frozen distribution facility. More than any other U.S. retailer, PriceSmart is familiar with the type of challenges awaiting retailers keen to enter Cuba. The company currently operates 39 warehouse clubs in 12 countries and one U.S. territory, including four in Trinidad, three in the Dominican Republic and one each on Aruba, Barbados, Jamaica and the U.S. Virgin Islands. The company also operates seven locations in Colombia, six in Costa Rica and five in Panama and three each in Guatemala and Honduras and two each in El Salvador and Nicaragua. The expansion and configuration of the company’s new facility will enable it to better serve its existing operations throughout the Caribbean basin and support future growth. PriceSmart hasn’t announced any plans to enter Cuba, but having the supply chain capacity in place to serve the market is a good place to start.

S P O NS S P O NS RE O D RCEODN C TE ON NTT E N T

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Director Director of Sales of Sales andand Marketing, Marketing, Airius Airius LLCLLC

infiltrating infiltrating air atairbay, at bay, but the but fans the fans helphelp to keep to keep floors floors dry during dry during inclement inclement weather, weather, mitigating mitigating slip hazards. slip hazards. RL: RL: Airius Airius offers offers a number a number of destratification of destratification solutions. solutions. HowHow doesdoes the company the company determine determine the best the best solution solution for for a particular a particular retailretail environment? environment? CA: CA: We offer We offer fansfans in many in many styles, styles, motor motor types, types, control control Air stratification Air stratification — a— layering a layering effect effect that that results results in in types, types, voltages voltages and and colors. colors. Working Working directly directly withwith the the pockets pockets of airofwith air with different different corecore temperatures temperatures — is— a is a owner owner or design or design teamteam allows allows Airius Airius to ask to the ask right the right problem problem that that impacts impacts many many HVAC-controlled HVAC-controlled indoor indoor questions questions and and guide guide a retailer a retailer withwith selecting selecting the best the best environments, environments, including including grocery grocery and and otherother retailretail stores. stores. fansfans for their for their store. store. Through Through its destratification its destratification product product lines,lines, however, however, Longmont, Longmont, Colo.-based Colo.-based Airius Airius LLC LLC not only not only can help can help Recently, Recently, Airius Airius released released a a retailers retailers increase increase comfort comfort and and enhance enhance indoor indoor air quality, air quality, series series of fans of fans specifically specifically but also but also can help can help themthem reduce reduce theirtheir carbon carbon footprint footprint and and designed designed for retail for retail applications. applications. savesave on HVAC-related on HVAC-related energy energy costs. costs. TheyThey havehave a can-light-type a can-light-type look,look, but the but interesting the interesting partpart Retail Retail Leader: Leader: How,How, specifically, specifically, do Airius’ do Airius’ is the is fan the nozzle. fan nozzle. The The Airius Airius destratification destratification fansfans enhance enhance the shopper the shopper experience experience Retail Retail Series, Series, configured configured withwith within within retailretail stores? stores? a narrow a narrow aisleaisle nozzle, nozzle, doesdoes not have not have the typical the typical round round Christian Christian B. Avedon: B. Avedon: The The biggest biggest impact impact is inisthe in the discharge discharge found found on our on other our other frozen frozen or cold-case or cold-case aisles. aisles. Shoppers Shoppers are known are known to to products. products. ThisThis particular particular fan fan “grab-n-dash” “grab-n-dash” whenwhen shopping shopping these these areasareas because because has has a more a more rectangular rectangular opening opening to profile to profile the airflow the airflow of the of inherently the inherently coldcold temperatures. temperatures. Our Our fan system fan system for narrow for narrow aisles aisles typically typically found found in retail in retail spaces. spaces. ThisThis captures captures warm warm air that air that naturally naturally risesrises to the to ceiling the ceiling and and givesgives you you greater greater spread spread downdown the length the length of anofaisle an aisle brings brings it to itthe to floor the floor in a in tight a tight column column without without washing washing and and less less spread spread toward toward the shelves. the shelves. I think I think this this latest latest out cases. out cases. The The result result is a is dramatic a dramatic rise rise in comfort in comfort for for product product release release is a is true a true testament testament to our to commitment our commitment employees employees and and shoppers shoppers alike.alike. I know I know that that whenwhen I’m I’m to developing to developing industry-specific industry-specific solutions solutions for retailers. for retailers. shopping shopping and and comfortable, comfortable, not freezing, not freezing, I tend I tend to shop to shop longer. longer. RL: RL: WhatWhat stepssteps doesdoes Airius Airius take,take, in partnership in partnership withwith retailers, retailers, to ensure to ensure successful successful deployment deployment of a of a RL: RL: Let’sLet’s talk talk beyond beyond the customer the customer experience experience — what — what destratification destratification solution? solution? otherother benefits benefits do Airius’ do Airius’ destratification destratification fansfans bringbring to to operators operators of retail of retail stores? stores? CA: CA: Our Our factory factory representatives representatives workwork closely closely withwith owners owners and and designers designers to assist to assist in proper in proper product product CA: CA: WithWith a fulla store full store deployment, deployment, our fan our system fan system works works selection selection as well as well as recommended as recommended placement. placement. If there If there alongside alongside the existing the existing HVAC HVAC to continually to continually balance balance or or is any is hesitation, any hesitation, Airius Airius offers offers a demo a demo program program to to thermally thermally equalize equalize the temperatures the temperatures in a in store. a store. ThisThis potential potential new new usersusers so they so they can can assess assess the impact the impact of of reduces reduces HVAC HVAC energy energy use,use, as well as well as increases as increases comfort comfortthe fans the fans for their for their particular particular problem. problem. For nationwide For nationwide throughout throughout the store. the store. Some Some retailers retailers use use the fans the fans nearnear rollouts, rollouts, we offer we offer purchase purchase agreements agreements to secure to secure deepdeep produce produce or salad or salad barsbars to keep to keep fruitfruit fliesflies away. away. JustJust a a discounts discounts for retailers for retailers that that wishwish to specifically to specifically partner partner bit ofbitairofmovement air movement knocks knocks those those tiny tiny fliesflies rightright out out withwith Airius Airius and and our technology. our technology. of the of air. the Another air. Another interesting interesting application application is near is near storestore entrances. entrances. Not Not only only do we doassist we assist withwith keeping keeping the the For more For more information, information, visit visit www.airiusfans.com www.airiusfans.com

> COVER STORY

Target’s

BIG Bet

Target Chairman and CEO Brian Cornell knows how to make hard choices. He joined the retailer in August

2014 and by January 2015 Target said it would exit Canada and book a $5.4 billion loss. Six months later, Cornell sold Target’s pharmacy business for $1.9 billion to CVS Health. Those moves were viewed favorably at the time, but more recent actions have unsettled investors and drawn critics. Cornell plans to spend $7 billion over three years on a wide range of initiatives to accelerate change, outlast competitors and establish a foundation for long-term growth. > By Mike Troy

One flaw many retailers have exhibited in recent years is consistently underestimating the pace of digitally influenced consumer behavior change while overestimating their own ability to keep pace with that change. Target has changed faster and is better positioned than other retailers, but it hasn’t been enough. That became increasingly apparent last year as sales and customer traffic deteriorated throughout the year and culminated in fourth quarter sales and profits that were worse than expected. Target Chairman and CEO Brian Cornell is out to remedy the situation with an ambitious plan and a big budget to accelerate change on multiple fronts to keep pace with, and maybe even get ahead of, the accelerating speed of consumer change.

“All across the retail industry many of our competitors are aggressively rationalizing their assets. They are closing stores, exiting markets and cutting costs just to keep their heads above water,” Cornell told analysts and investors at a meeting on Feb. 28. “We’ve not seen this number of distressed retailers since 2009 in the Great Recession. This contraction will create opportunities for Target to pick up market share over the long term, but aggressive promotional activity will create pressure on our business in the near term.” Other pressures on Target’s business are self-imposed. The company is hitting the reset button on pricing in key categories such as food and consumables to restore credibility with its traditional everyday low price approach. The reduction in

TARGET’S INCONSISTENT COMPS

Uneven same store sales will continue in 2017 with more negative numbers forecast. 5 4 3 2 1 0 -1 -2 -3

5.3% 3.1% 2.9%

2.3% 1.2%

1.2%

0.9%

0.4%

-0.3%

-0.6%

0% -1.1%

-0.2% -1.5%

-2.5%

Q2 Q3 2012

Q2 Q3 2013

Q2 Q3 2014

QUARTERS SOURCE: Company Reports

2.4% 1.9% 1.9% 1.2%

1.3%

Retail Leader.com MARCH/APRIL 2017

Q2 Q3 2015

Q2 Q3 2016

Candy and Snack Sales Will Grow in 2017... Will You Get Your Share?

Put your team in the center of the whole treating and snacking world. Across all channels, confectionery, cookies and salty snacks account for more than $430 billion in annual sales. These categories drive sales at the front end, center-store and seasonal aisles.

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> COVER STORY

Cathy Smith, EVP & Chief Financial Officer

John Mulligan, Chief Operating Officer

Mark Tritton, EVP & Chief Merchandising Officer

prices will hurt gross margins, but ,as Cornell explained, the company had become too promotional in the aftermath of a data breach during the 2013 holiday season. The quality of fresh food offerings is being upgraded even though Target has no designs on becoming a full service grocer. Big investments are planned to open 30 new small stores known as flex formats that allow the company to penetrate densely populated urban and suburban markets and also function as pickup locations for digital orders. Plans also call for an upgrade of existing locations with 2017 marking the beginning of an ambitious remodeling effort that will see roughly 600 stores upgraded during the next three years at a cost of about $5 million per store. There will be further enhancements to digital capabilities and a total transformation of a supply chain better able to fulfill digital orders and replenish stores in a more efficient manner that improves in stock. Then there is the introduction of new private brands, 12 in total, mainly in the home and apparel area that will require considerable marketing support. All of those things cost money, about $2 billion in 2017 and $7 billion over the next three years.

THE LONG VIEW Wall Street has a strange way of reacting when retailers announce major strategic plans. Oftentimes a company that closes stores and eliminates positions is hailed because the moves are seen as reducing expenses to bolster short term profits. Target applied a different philosophy and got a harsh reaction to the sweeping range of initiatives it announced. 42

Retail Leader.com MARCH/APRIL 2017

The company made a lot of people very unhappy the morning of Feb. 28 when it revealed fourth quarter sales were worse than expected. Same store sales declined 1.5 percent, customer traffic was weak and adjusted earnings per share had declined to $1.45, six cents below analysts’ consensus estimate. While those figures were disappointing, the bigger issue for the financial community was talk of accelerating investments, reduced prices, a weak outlook and an unsettling reference to a new financial model. The damage had been done by the time Cornell walked on stage at 9 a.m. in the elegant ballroom at 583 Park Avenue in Manhattan, where the company’s investor conference was held. Its stock price, which was already near a 52-week low, had declined more than $9.50 from the prior day’s close of $66.91. More than $5 billion in market capitalization had evaporated before Cornell and the executive team of COO John Mulligan and CFO Cathy Smith shared the company’s plans. “We could make changes to maintain our margins through this transition. We could cut store service and cleanliness standards. We could pull back on marketing, we could stop investing in brands and cut back on their quality, and we could stop investing in our stores,” Smith said. “Those changes would help our P&L in the short term, but they are absolutely the wrong long-term decisions.” Target may well be doing the right things for the long term health of the business, but if that is the case, Cornell and Smith have shared few details about how that success will be measured. For example, 2017 is billed as a year of investment with expectations lowered considerably. A low single digit decline in same store sales coupled with expense pressures will produce earnings per share in the range of $3.80 to $4.20, well below last year’s profit of $5.01 and the current year consensus estimate of $5.29 that was in place prior to Feb. 28. In subsequent years, Target has offered few specifics about sales growth targets or profitability measures. Instead, 2018 is said to be a transition year followed by the resumption of an unspecified level of profit growth in 2019.

CAUSE FOR CONCERN Target’s unwillingness to share its performance expectations beyond 2017 underscores the tenuous nature of fast-changing consumer demand and competitive conditions compounded by the risk associated with Target’s ability to execute its plans. To be sure, there are a lot of moving parts to the plan that Cornell has outlined and because retail is already a complex business it is natural to question the company’s ability to fire on all cylinders. To defuse those concerns, he highlighted that much of the groundwork has been laid already. “If there’s a message I want everyone to walk away with today, these aren’t new initiatives,” Cornell said during the investor meeting. “We’ve been working on these for several years. Now it is time for us to go faster. This is about accelerating.” Target has recognized that it needs to accelerate change even faster or risk suffering a fate similar to some of its midtier department store competitors such as Macy’s, J.C. Penney and mall-based specialty chains that are closing stores. Target isn’t planning any sort of large scale reduction of its

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Virtual VirtualReality’s Reality’sROI ROI and andImpact Impacton onRetail Retail Innovation Innovation Retail Retail Leader: Leader: There There have have been been quite quite a few a few bigbig mergers mergers and and acquisitions acquisitions in in thethe retail retail space, space, just just in in 2017 2017 alone. alone. What What dodo you you see see asas thethe main main reason reason forfor soso many many consolidations? consolidations? Mark Mark Hardy: Hardy: When When it it comes comes to to retail retail and and CPG CPG companies, companies, we’ve we’ve been been seeing seeing major major industry industry disruption disruption due due to to consumer consumer behavior behavior shifts shifts and and declining declining market market values. values. There’s There’s nothing nothing like like Warren Warren Buffet Buffet announcing announcing hehe letlet gogo of of 9090 percent percent of of hishis Walmart Walmart stock stock to to signal signal immediate immediate change change is is necessary necessary in in thethe retail retail space. space. So, So, moves moves like like acquisitions acquisitions and and consolidations consolidations areare often often made made to to help help ease ease some some of of thethe pain pain from from thethe e-commerce e-commerce and and emerging emerging startup startup competition. competition. It’sIt’s nono secret secret retailers retailers areare facing facing financial financial instability.While instability.While M&As M&As might might boost boost business business forfor a while, a while, companies companies still still need need to to bebe agile agile and and innovative innovative in in their their business business processes processes to to remain remain relevant relevant to to today’s today’s consumers. consumers. RL: RL: How How is is virtual virtual reality reality helping helping retailers retailers stay stay relevant relevant in in such such a competitive a competitive space? space? MH: MH: When When people people hear hear thethe words words virtual virtual reality reality and and retail retail together, together, they they probably probably automatically automatically think think of of thethe consumer consumer applications applications forfor virtual virtual shopping shopping and and v-commerce. v-commerce. And And while while v-commerce v-commerce is is quickly quickly becoming becoming one one way way retailers retailers areare using using technology technology to to reach reach shoppers, shoppers, we’ve we’ve always always been been focused focused onon VRVR applications applications asas they they relate relate to to transforming transforming business business processes. processes. Virtual Virtual reality reality solutions solutions allow allow retailers retailers and and manufacturers manufacturers to to develop develop and and implement implement new new in-store in-store concepts concepts more more efficiently, efficiently, byby eliminating eliminating thethe time, time, cost cost and and risk risk factors factors associated associated with with physical physical world world concept concept creation. creation. Companies Companies can can ideate ideate multiple multiple concepts concepts within within a virtual a virtual store store space space in in order order

to to visualize visualize what what it it will will look look like like in in a real a real store store or or onon thethe shelf. shelf. NoNo expensive expensive mock mock stores stores required. required. They They can can then then test test concepts concepts virtually virtually with with real real shoppers, shoppers, and, and, finally, finally, leverage leverage that that data data to to execute execute thethe winning winning concept concept to to market. market. Companies Companies in in ourour industry industry areare in in need need of of change change agents agents that that modify modify outdated outdated behaviors behaviors and and enable enable growth, growth, and and many many manufacturers manufacturers and and retailers retailers areare finding finding positive positive ROI ROI from from leveraging leveraging VRVR solutions. solutions. RL: RL: What What areare some some examples examples of of ways ways retailers retailers areare using using your your VRVR solutions solutions forfor positive positive ROI ROI right right now? now? MH: MH: WeWe had had one one client client who who saved saved over over a year a year of of wait wait or or work work time time onon one one initiative initiative due due to to thethe efficiency efficiency VRVR provides, provides, while while also also improving improving their their communication communication and and collaboration collaboration between between teams teams and and outside outside partners. partners. InIn another another example, example, wewe worked worked with with a retailer a retailer to to develop develop and and test test new new signage signage that that would would drive drive shoppers shoppers to to thethe center center store. store. AA range range of of concepts concepts were were created created and and modeled modeled in in 3D3D and and placed placed in in virtual virtual store store aisles, aisles, and and they they were were able able to to quickly quickly determine determine a winner. a winner. OfOf course, course, it it always always depends depends onon thethe goals goals of of each each retailer, retailer, but but onon average average ourour retail retail clients clients have have seen seen a return a return of of 3x3x from from cost cost savings savings alone alone byby notnot having having to to build build outout layouts layouts in in mock mock centers centers and and flyfly in in executives executives and and customers customers forfor review. review. And And ourour enterprise enterprise clients clients have have experienced, experienced, onon average, average, anan 8x8x return return from from making making more more informed informed decisions, decisions, with with accurate accurate evaluation evaluation tools tools and and quick quick insight insight turnaround turnaround times. times. Whether Whether you you measure measure your your ROI ROI in in time, time, dollars dollars or or insights—or insights—or aa combination combination of of allall three—VR three—VR offers offers solutions solutions to to help help you you along along thethe way. way. ForFor more more information information onon virtual virtual reality reality solutions solutions forfor retail, retail, visit visit www.incontextsolutions.com www.incontextsolutions.com

> COVER STORY 1,800 unit store base, but those attending the meeting were reminded several times that Target’s stores are not tethered to malls but rather situated in locations that other retailers desire. That’s why the company is emphasizing a remodeling effort that involves extensive upgrades to the store experience and operational capabilities to ensure its locations are equipped to handle a growing volume of digital orders. According to Cornell, Target is moving from a very linear model that progressed from supplier to distribution center to store to customer to an approach he called a “smart network.” “Distribution centers, stores and digital channels become guest-facing access points where Target is always on, where Target is always within reach, down the street, on your door step or simply in the palm of your hand,” Cornell said. “The challenge ahead is really about continuing to understand how consumer preference and expectations are evolving. Anticipating where they are going, what they will want before they have to tell us. Finding new ways to engage at every stage in every occasion. Offering and clearly communicating compelling value in every interaction, at every touch point, and building a new Target that’s uniquely positioned to compete and win, delivering on two pillars of market share growth, one digital, and one physical.” Underpinning that vision is a major effort to transform the supply chain.

JUST IN TIME Target feels good about the growth of a digital business that has expanded faster than the overall market and accounts for a growing percentage of sales. During the Black Friday weekend in 2014, digital accounted for 7 percent of sales and ship-fromstore capability was available in only 150 locations. This past year, Black Friday weekend digital sales accounted for 14 percent of total sales and the 1,000 stores capable of fulfilling online orders accounted for 68 percent of the volume. Total e-commerce sales last year were $3.4 billion, nearly 5 percent of total company sales of $69.5 billion. In just Further enhancements to already robust store fulfillment capabilities are part of Target’s strategy.

Retail Leader.com MARCH/APRIL 2017

three years, the company has more than doubled digital sales with much of the credit due to investments made to re-platform Target.com and mobile channels to accommodate the growing volume. Target knows digital channels will continue to grow, but to what level is unclear, so to prepare for the future a total transformation of the supply chain is underway. COO John Mulligan conceded that the company’s current network of 40 distribution centers is too slow and filled with too much inventory that isn’t always in the right place. “In the future, we know we will still have to move cases, but to replenish our stores faster and manage the growing digital demand we have to start moving individual items too,” Mulligan said. “The concept is really pretty simple. When a store sells one bottle of a certain shampoo, we put one of those bottles on the next store truck within hours. It’s replenishing to actual guest demand and doing it fast.” If it works, product arriving in stores will go straight to the sales floor, improving in stock and minimizing back room storage, so that space can be redeployed to fulfill digital orders. “Today we have several pilots already underway and we will start transitioning to this model in the spring starting in the Northeast. The opportunities these changes open up in terms of last mile delivery speed are really exciting. We will ship faster and at a lower cost, improving guest satisfaction and digital profitability,” Mulligan said. It promises to be a competitive advantage for Target, which is why CEO Cornell said the company won’t be offering tours of its distribution centers he described as the secret sauce in the total supply chain transformation. Such changes, whether in the supply chain or other more customer-facing areas of the business, is something Target has always done, according to Cornell. “When you think about what’s in front of us, the seismic shift in consumer behavior that’s disrupting our industry, we’re doing what we’ve always done. We’re taking the long view, investing to compete, investing to grow, and we have the financial strength and the resources to build a new company,” Cornell said. “To our guests, the entire experience will look and feel like a completely new Target. While many of our competitors are cutting costs and just trying to survive, we are doubling down. We know there will be meaningful opportunities to capture additional market share now and in the long term.” It’s why Target is spending aggressively to expand its reach, remodel stores and re-invent the supply chain to drive digital growth. It’s why pricing investments are being made to improve the company’s competitive position and why, most important, Target is investing to move faster than it ever has before. The combination of these factors is designed to produce the Target of the future, a company Cornell expects to be successful for another 50 years. RL

SP ON SORE D C ON TE N T

NATURE MADE® HELPS RETAILERS MEET SHOPPER NEEDS & DRIVE CATEGORY GROWTH As a result of high healthcare costs and an increased emphasis on preventative care, more and more U.S. consumers are turning to vitamins and dietary supplements in an effort to maintain their health. In fact, London-based Euromonitor International projects that the U.S. vitamin and dietary supplement segment will record a compound annual growth rate of 3 percent, at constant 2016 prices, to reach sales of $31.7 billion in 2021.1 Critical to that growth, however, will be new products that mesh with the needs of today’s consumers. California based Pharmavite LLC is one company that continues to invest in new product innovation. This year, the company will be introducing seven new supplements under its highly trusted Nature Made brand — the first national supplement brand to have a product verified by the United States Pharmacopeia. The new items could allow retailers to target a number of specific shopper need states — and grow supplement category sales.

• Nature Made Adult Gummies Multi for Him Plus Omega-3s. Formulated with the male consumer in mind, these gummies combine 11 key nutrients for daily nutritional support with 60mg of heart-healthy EPA and DHA omega-3 fatty acids for heart health.† The product contains vitamin D to support bone, teeth, muscle and immune health, as well as vitamin A and zinc to help support a heathy immune system, and vitamin B12 to support energy metabolism.†

Supporting Health

Enhancing Beauty

Four of the new Nature Made® supplements are designed to target specific health needs. These items include:

Also set to launch this year is the Glow by Nature Made line, which aims to help support skin hydration/moisturization from within and help with skin suppleness, firmness and smoothness for adults with dry skin. The three-item softgel line includes:

• Highly concentrated, clinically studied Nature Made Omega-3 with Xtra Absorb Technology, which is designed to help support heart health.† The product’s Xtra Absorb technology creates microdroplets that enhance the absorption of EPA and DHA omega-3s to provide almost four times better absorption than standard fish oil concentrate.2 Each 1,200mg softgel provides the recommended amount of key omega-3s—500mg EPA and DHA omega-3s.* • Clinically studied Nature Made Immune Care Daily Support, which supercharges the body’s natural immune defenses through the power of green tea.† Each tablet combines 360 mg of green tea extract with 200mg L-Theanine to provide daily immune system support.† • Nature Made Dual Action Digestive Probiotic + Energy B12 Gummies. The gummies, which come in Raspberry and Cherry flavors, feature probiotics (Bacillus coagulans IS-2) to naturally help support digestive health, as well as 1,000mcg of vitamin B12 to support cellular energy production.†

• Glow by Nature Made® Skin Moisture. Each softgel contains 70mg of CeramosidesTM, which helps support skin hydration by helping to form a lipid barrier within the skin to retain moisture.†, ** Copper and vitamins A and E provide additional skin health support, too.† Ceramosides helps support skin hydration is as little as 15 days. †,** • Glow by Nature Made Skin Moisture + Hair & Nails, which combines the ingredients of the original product with 2,500mcg of biotin to also help support healthy hair, skin and nails.†, 3 • Glow by Nature Made Skin Moisture + Sleep, which combines the ingredients of the original product with 1mg of melatonin to also help support sleep.† To learn more, visit naturemade.com *”Recommended amount” equates to a calculation based on approximately 3,500 mg of EPA & DHA omega-3 fatty acids found in two servings of fatty fish per week. **For adults with dry skin. 1

”Vitamins and Dietary Supplements in the US,” September 2016.

Standard ethyl ester concentrate when taken on an empty stomach.

May help support healthy hair, skin and nails in those who are biotin-deficient.

†These statements have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure or prevent any disease.

> COVER STORY TARGET FLEXES NEW EXPANSION MUSCLES

Target uses a specially designed cart in flex format stores.

expansion opportunities that began in 2012 when Target began opening urban stores branded as City Target that measured about 100,000-sq.-ft. Then came the Target Express concept that was much smaller at 20,000-sq.-ft. Two years ago both concepts were rebranded as simply Target and the company realized it was on to something. The flexible approach gave Target access to new real estate opportunities where high sales per square foot productivity offset increased operating costs. “Flex formats are more complex to design, build and run, but we know that this is where the growth is for Target,” Schindele said. Thirteen flex format stores opened last year and another 30 are planned this year with 40 openings annually planned by 2019. The distinctive stores will be located in what Target is calling priority markets that include the San Francisco Bay area, Los Angeles, San Diego, Chicago, New York, Boston, Washington, D.C., Philadelphia, Seattle, Miami and Minneapolis. “Teams are on the ground looking for great sites in those neighborhoods that we’ve identified that have a little bit of friction to get to a Target experience,” Schindele said. “The other thing we are doing is looking at all major college campuses. We know that students very often don’t have cars, they have limited retail options and we know they are really enjoying their campus Target stores that we have built.” This summer and fall, Target will open campus stores at the University of Florida in Gainesville, the University of North Carolina in Chapel Hill, the University of Southern California in Los Angeles, the University of Texas in Austin, the UniverA flex format in lower Manhattan offers a more affordable selection of fresh, frozen, refrigerated and dry grocery items than a Whole Foods Market a block away. sity of California in

From a rigid and consistent approach to one that is flexible and open-minded, Target has made a 180-degree turn when it comes to pursuing future growth opportunities. The philosophical shift is most evident with Target’s new and accelerating flex format strategy. That strategy is part of larger effort to create what Target Chairman and CEO Brian Cornell calls a “smart network,” consisting of distribution centers, stores and digital channels. The store component involves an emphasis on smaller locations in more densely populated urban and suburban areas and college campuses that can serve as pickup locations for online purchases while offering curated assortments and store experiences finely tuned to the community. It’s a huge shift for Target, where for most of its existence there was a single store size of 135,000-sq.-ft. with little localization of merchandise. It was an efficient approach and gave Target guests a consistent experience whether they were in Miami or Seattle, whether they wanted it or not. “We don’t really have a prototype size that we look for now with stores,” said Mark Schindele, SVP of Properties at Target. “We look for what is the right location and we customize an experience that ranges from 10,000-sq.-ft. up to 130,000-sq.-ft. and anywhere in between. That’s why we call our new stores flex formats because they are highly flexible and customized to the neighborhood.” The flex concept was born out of the pursuit of new

Retail Leader.com MARCH/APRIL 2017

> COVER STORY Irvine, North Carolina State in Raleigh and the University of Cincinnati. “You are seeing us rapidly accelerate this format because of the positive reaction from our guests and positive results,” Schindele said. “We have a process that allows us to identify a site and then have the doors open for business within a year.” As part of the process, Schindele’s team involves merchants and operators early on to develop assortment, space allocations and operational approaches unique to different store sizes and locations. The flexibility is evident at one of Target’s newest flex format stores in the lower Manhattan neighborhood of Tribeca. Schindele’s team found an unconventional space that Target never would have considered five years ago because of its size and odd configuration that creates receiving and replenishment challenges. However, the neighborhood itself is in Target’s sweet spot with lots of young families lacking a mass market option with compelling prices. The store measures 50,000-sq.-ft., but that space is split between a 10,000-sq.-ft. upper level with mainly apparel presented and a Chobani branded food service offering. The 40,000-sq.-ft. lower level features an edited assortment of almost every other category a shopper would expect to find at typical suburban Target. “A key part of the flex format strategy is we curate the assortment for the neighborhood. We do a lot of research on guests, competitors, voids in the marketplace and how we can better serve the neighborhood. We then design the assortment and experience for the neighborhood,” Schindele said. In the case of the Tribeca store, a few blocks from the former site of the World Trade Center, Target merchants could tell from the volume of strollers being wheeled around the area’s wide sidewalks that a large baby section was needed and a logical adjacency would be next to kids’ apparel and toys. Other space allocations take some time to fine-tune. Target discovered after the store opened last October that the pet category was more important than initially thought so the assortment was adjusted accordingly. As for the store experience, because smaller Urban shoppers tend to carry their purchases home.

Retail Leader.com MARCH/APRIL 2017

Time pressed urbanites can get on their way quickly thanks to 13 self checkouts and 16 staffed registers at the lower Manhattan flex format.

neighborhood stores tend to be shopped more frequently and transaction size is smaller, special features are in place. There are three types of shopping carts: a short wheelbase upright model, an oversize hand basket with wheels that can be used as a cart, and a conventional hand basket. When shoppers are ready to check out they have the option of 13 self checkout lanes or 16 staffed checkouts. To keep shelves full at the heavily trafficked location, the store receives multiple deliveries every day from a specially designed 28 foot truck that is able to ply the congested streets of Manhattan. The trucks use a loading dock on the upper level with goods transferred to the lower level in a large freight elevator. At other locations that lack a loading dock, Schindele said operators are working through the details of doing street level unloading and receiving of goods. While Shindele has led Target’s real estate group since 2015, he brings a much needed merchant and operator perspective to the role. He had served as President of Target Canada for eight months just prior to the company’s decision to exit the market. Prior to that he held a variety of merchandising roles at Target since joining the company in 1999 after seven years with Macy’s. RL

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A glimpse at the minds and personalities of IRI’s thought leaders. Chicago-based IRI is a technology-driven big data and analytics company at the forefront of the consumer buying revolution. IRI delivers the world’s largest set of market, consumer purchase and integrated media data to CPG, retail and OTC healthcare companies around the globe. As a result, its clientele reaps the benefits – growing their businesses and in turn further growing a giant and alwaysevolving industry.

Here we have insights shared by IRI’s Executive Vice President and Chief Marketing Officer John McIndoe. McIndoe is thrilled to share exciting opportunities that will be at this year’s Growth Summit, held in Nashville, Tenn., April 3-5, 2017. He highlights don’t-miss events at the Growth Summit, who will be there to inspire and motivate the industry and what the agenda has to offer.

Q. How can IRI’s Growth Summit help the industry navigate the ever-changing world of big data and better harness it for growth? A. CPG marketers have so many resources at their fingertips — and more complexity than you can imagine. From aggregating multiple sources of disparate data sets to understanding the constantly evolving consumer path to purchase, it’s no easy task to be a marketer. That’s why we built this year’s program all around the theme “Collaborate-Personalize-Grow.” Summit attendees will learn how to tackle their toughest big data challenges, including manufacturer/ retailer/media collaboration and consumer personalization, while hearing success stories from their peers and advice from some of the most successful marketers in the world. We will inspire turning insights into action. Q. How broad is the panel of speakers and who will be some of the headliners? A. We’ve taken great care in selecting our speakers from top CPG manufacturing and retailer brands to deliver brilliant, creative insights to help companies turn big data into big growth. Albert Carey, CEO of PepsiCo North America, will provide insights into the future of collaboration and consumer personalization. Felipe Szpigel, president of The High End Business Unit for Anheuser-Busch InBev, is committed to helping his partners act faster and bring more options to consumers. On the retail front, we’re thrilled to have Christina Hennington, SVP of Merchandising Transformation & Operations for Target, who will share her strategies on localization and wellness. Producer and author Mick Ebling also will share his story on how to develop creative solutions to change the world. And last but not least, we have a well-known figure from the world of sports who will share his thoughts on the importance of team work. Q. What will an attendee take away from the Growth Summit and how can they apply it to their own business? A. We have more than 1,000 attendees converging in Nashville, and each has their own unique background, perspectives and growth experiences to share. So, we’ve developed a program that offers something for everyone — compelling keynotes, success stories, new solutions and notto-be-missed networking opportunities. I encourage everyone to jump into the sessions, roll up their sleeves in a workshop and learn all they can about the latest opportunities in e-commerce, real-time media planning and activation, faster-than-ever pricing, promotion and assortment capabilities and how to apply the latest technological advances, to name a few. Our goal is to provide new ideas, help attendees rethink the way they make decisions and ignite growth. Q. Which part of the Growth Summit will provide the most actionable take-aways? A. While our keynotes paint the big picture about what’s on the horizon for the CPG industry, our Best Practice Sessions take a deep dive into the latest thinking in analytics, consumer and shopper intelligence, market performance, media, retail and technology. We’re offering more than 20 sessions that are designed to highlight specific strategies and action plans to give attendees clear direction on how to translate big insights into actions that will bring growth. Q. What makes Growth Summit’s venue special this year? A. Our keynote speakers will be sharing their industry insights directly from the stage of the iconic Grand Ole Opry House! No matter what your favorite music genre is, this historic space is a national treasure and not to be missed. As the great Patsy Cline said, “Carnegie Hall is real fabulous but it ain’t as big as the Grand Ole Opry.”

4 out of 10 marketers say inconsistent data across technologies is one of their biggest challenges.

We think thatâ&#x20AC;&#x2122;s

4 too many. Join us to hear new insights on CPG data integration, manufacturer/retailer/media collaboration and consumer personalization to power your growth.

April 3-5, 2017 Nashville, TN

IRIGrowthSummit.com

GROWTH

SUMMITâ&#x20AC;&#x2122;17

Retail Pulse

the heartbeat of the marketplace

Invest in E-commerce:

Its Influence and Presence are Substantial While currently it accounts for only a small percentage of overall CPG sales, e-commerce is exploding. The

include e-commerce is that brick-and-mortar retailers must rewire their go-to-market strategies. One of the most dynamic differences between e-commerce and traditional brick-and-mortar retailers is the shelf. Traditionally, in the brick-and-mortar marketplace, retailers invest significant sums of money to build inventory before brand-promotion efforts even begin. However, the e-commerce world has a “limitless shelf,” allowing for sales of products that aren’t even part of inventory. The onus on creating demand is placed on manufacturers, and then retailers must react. Demand creation precedes inventory build-out.

channel is poised to claim an average 10 percent of industry sales by 2022, according to analysis by Chicago-based IRI.

The influence of e-retail, however, goes well beyond the actual moment of purchase. IRI reports that more than three-quarters of all Sam GaGLiaRdi , Senior Vice President of E-Commerce, shopping trips begin online—a retail value of Consumer Shopper Marketing, IRI well over $2 trillion—regardless of whether the purchase is made in a brick-and-mortar store or online. And while millennial shoppers index high, shoppers across age demographics are actively developing their ManufactuReRs and personal online shopping systems. MaRketeRs engage The broad and deep reach of e-commerce demands that With more and more shoppers spending time online shopthe channel be embraced as much or more than just a sales ping—or at least researching products—e-commerce must be a avenue. Its growing impact as a marketing platform cannot key digital pillar for a CPG strategy. CPG marketers can grow ebe ignored. Manufacturers and retailers alike need to invest in commerce sales by up to 150 percent by building a strong online understanding e-commerce impact and potential. presence and earning shopper awareness, IRI forecasts. The influence and impact of e-commerce can be significant and very positive, and the cost of missing the opportunity is quite RetaileRs Respond high. Through e-commerce, CPG marketers are well-equipped to There has been a flurry of activity among retailers looking influence shoppers in the store and online because they have visto build out e-commerce capabilities, with some choosibility along the entire path to purchase. By getting organized and ing to build their own infrastructure and some choosing setting strategies that follow shoppers’ online behavior, retailers acquisition of existing e-commerce retail sites. Regardless of and marketers can collaborate to make big strides and earn big. their methods, retailers must move fast to establish a strong E-commerce will continue to boom, making e-retail a phenomfoothold in this dynamic marketplace. enal growth lever for those that keep up with the revolution. RL The most complex issue in the transformation of retail to

Millennials: Almost 2/3 shop online weekly

35-54 year-olds: 84% shop online monthly Source: Clavis Insight, 2016 U.S. Shopper Survey

Retail Leader.com MaRch/apRil 2017

CPG E-commerce Growth 2015-2022 % CPG Dollar Sales 2015

2020

2022

CPG E-com. Share

1.4%

5.0%

10.0%

F&B E-com. Share

0.8%

2.7%

5.5%

Non-Food E-com. Share

2.5%

9.3%

18.2%

Source: IRI Growth Consulting Analysis; Note: Numbers may not add to 100 percent due to rounding.

Data & Insight Provided By

Go-to-market strategies look drastically different in the e-commerce world.

Brick-and-Mortar Push Strategy vs. E-commerce Pull Strategy

Source: IRI Analysis

E-commerce is as much a marketing channel as it is a sales channel.

Even traditional brick-and-mortar brands must have a strong online presence and ensure that their presence is strategically located along the path to purchase.

Source: IRI Analysis

March/april 2017 Retail Leader.com

> SUPPLY CHAIN

Click and Collect Goes

MAINSTREAM WHY INDUSTRY ESTIMATES ABOUT THE IMPACT OF DIGITAL ADOPTION ARE CONSERVATIVE AND ULTIMATELY IRRELEVANT. > By Mike Troy

The pace of digital integration occurring in the supermarket industry is accelerating. No one would dispute

ments, suggesting a fundamental evaluation of the role the store plays in digital food shopping. “This is a zero sum game and not everyone is going to make the transition smoothly or efficiently,” said that. Less clear is how fast and how far shopMark Baum, SVP and Chief Collaboration Officer pers embrace digital engagement methods and with the Food Marketing Institute. It is a sobering thought, but also a retail reality that fulfillment options. not all operators adjust to changing market dynamics Recent research from the Food Marketing Institute evenly. This is evident among companies regarded as and Nielsen sought to quantify the magnitude of the industry leaders who are different stages of developdigital shift that is occurring. The organizations conment. Some are well into the rollout phase, others tend that by 2025 online grocery shopping (defined as have done little to nothing and others are experimentfood, beverage and CPG) could reach $100 billion, or ing with various services, delivery and store pickup roughly 20 percent of a market valued at $500 billion. options. For example, H-E-B launched its click and The research also suggests that online food shopping collect service branded as Curbside in 2015 and also will reach maturation in the U.S. far faster than other offers home delivery via Instacart and Shipt. Curbside industries that have come online before. The center is now available in 20 of H-E-B’s nearly 400 locations store is likely to shift online faster than other departas the pace of the rollout has been slow. Supercenter operator Meijer has expanded its click and collect grocery service at faster pace and it is now available in 30 of its 230 stores following a 2015 launch. Walmart has steadily ramped up its online grocery business branded simply as Pickup and it is now available at 600 stores in about 100 markets with company executive frequently touting its popularity with shoppers. Meanwhile, the Jet.com business Walmart acquired last year for $3.3 billion also ships to food to homes from a centralized distribution center that serves 15 million customers, according to the latest update provided by CEO Marc Lore, who also noted that the company is focused on winning in fresh and consumables over the next couple years. Lockers are now available in all shapes and sizes to accommodate different operating environments. Becoming more aggressive

Retail Leader.com MARCH/APRIL 2017

> SUPPLY CHAIN on the digital front is Kroger. The company added online grocery capabilities, branded as ClickList at Kroger stores and Express Lane at Kroger’s Harris Teeter stores, to 420 locations during 2016. It now operates more than 640 stores where customers can order online and pick up at store. “As our customers change and evolve, we are taking steps to meet them where they are and more importantly where they are going. We’re making meaningful invest“We’re making ments in digital. We feel great about meaningful these investments because customers tell us they are important to investments in them,” Kroger Chairman and CEO McMullen said during a digital. We feel Rodney March 2 conference call following great about these the release of fourth quarter results that saw same store sales decline for investments the first time in a decade. The rapid of expansion follows Kroger’s because customers pace 2014 acquisition of Harris Teeter, tell us they are where Fast Lane was already in place and served as a model for Kroger’s important to development of ClickList. The comwon’t add as many click and them.” pany collect locations in 2017 as it did last year, but that’s not because there —Rodney McMullen Kroger Chairman and CEO is a lack of customer demand. The reduced rate of expansion is driven more by challenges related to finding stores with adequate space, securing zoning changes or other types of approvals, according to McMullen. “We are also experimenting with ways to solve the last mile equation. We’re testing with Uber delivery in several locations with plans to expand in 2017 where our customers can order through ClickList and choose to have their groceries delivered by a local Uber driver,” McMullen said. “We have a couple of other home delivery tests as well.”

A LEVEL PLAYING FIELD While industry leaders are able to develop digital capabilities in house to offer click and collect or home delivery services, smaller retailers are benefiting from a phenomenon known as the democratization of technology. For example, it is possible for an independent retailer to offer capabilities that rival those of Walmart and Kroger thanks to services of a firm like Freshop. The online grocery platform founded by CEO Brian Moyer about two years ago offers customized e-commerce technology that enables independent grocers to compete with large national chains. The Freshop technology is gaining rapid adoption and will be in 1,500 stores this year for several reasons. “All we do is online grocery and for a retailer to break even on their investment they only need one order a day,” Moyer said. “We also work with retailers to develop the optimal walk path to fulfill orders.” Once orders are picked, other companies are focused on solutions to optimize deliveries. For example, a company called Dispatch Track plans to enter the food retailing world this summer with a solution first developed for the furniture and appliance markets. Dispatch Track is the market leader in that space and helps retailers with scheduling deliveries, optimizing routes, making adjustments in real time and managing customer expectations. Those same factors are hugely important when it comes to home delivery of groceries.

SHOPPERS LOVE LOCKERS Whether home delivery or click and collect, fulfillment methods are proliferating and do not always involve a store associate loading purchases into the back of an SUV. A new level of flexibility is available to retailers thanks to advancements in locker systems that can handle large or small orders and be located indoors or outside. “Retailers need flexible, modular solutions that can change as quickly as customer expectations,” said Kent Sav-

WFM & Doddle vans: Home delivery and click and collect continue to gain traction.

Retail Leader.com MARCH/APRIL 2017

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> SUPPLY CHAIN age, Apex Supply Chain Technologies founder ing a service called Powered by Doddle that “Retailers and CEO. “Our range of automated click and includes software, training, communications need flexible, and analytics modules U.S. retailers would use collect lockers are informed by our experience deploying more than 100,000 devices.” to enhance their click and collect experience. modular Consumers love the convenience of ordering That word “experience,” is used a lot in online and picking up their purchase at the store, solutions that retail and most often it describes the in-store according to Savage. It saves shipping costs, they experience. The logic being that if the incan change as store experience is awesome enough, shopget what they want right away and no one needs to be home to receive the parcels. Consumers also quickly as pers will be less likely to use digital shopping hate waiting in line to pick up their purchase. He methods. The more likely scenario over time contends automated, self-serve click and collect is that shoppers will expect the store and customer lockers solve the problem, as long as they are digital experience to be equally awesome and expectations.” indiscernible. This is especially true for the flexible enough to accommodate a range of merchandise in a variety of locations. For example, shopper of tomorrow, the Gen Z population — Kent Savage Apex offers a locker product that is rugged, water- Apex Supply Chain cohort of those under age 22 projected to resistant and designed for outdoor placement that Technologies founder total 2.6 billion in 2020. can be placed curbside at a store or remotely and “Generation Z expects technology to be and CEO customize with a retailer’s graphics. intuitive, relevant and engaging — their Lockers present some challenges where fresh food prodlast great experience is their new expectation,” accorducts are involved, but the approach is clearly gaining tracing to Steve Laughline, IBM General Manager of Global tion and attracting European solution providers. E-comConsumer Industries. IBM and National Retail Federation merce enjoys a higher penetration rate in Europe, especially released a study earlier this year that explored Gen Z physiin the United Kingdom, where retailers have been at the cal and digital preferences. “This (expectation) presents click and collect game longer than their U.S. counterparts. a significant challenge for retailers and brands to create a “Retailers who offer click and collect have to make it personalized, interactive experience with the latest digital quick and in the U.K. retailers had to accept that they can’t advances or risk falling behind. This kind of innovation force customer to go where they want them to go,” said is not linear or a one-time project — it is a new way of Doddle CEO Tim Robinson. thinking, operating and behaving.” The Doddle operates a growing network of 70 click and So future generations, as well as today’s Millennials, collect locations throughout the U.K. in high traffic areas such accustomed to getting an answer to almost question by as mass transit hubs. The locations are integrated with retailasking Google, Siri or Alexa, may wonder why their local ers and big carriers to serve as merchandise pickup and return supermarket doesn’t offer voice recognition capabilities for locations and have handled roughly 2 million transactions list-making that could also suggest items in a sort of digital since the company launched in 2015. Doddle is not looking to cross-merchandising fashion. Or why they can’t simply open its distinctive purple stores in the U.S., but it is offerclick on a recipe on their smartphone and have all the ingredients for a meal delivered in time to prepare dinner. Food retailers have lagged other sectors of the industry when it comes to digital initiatives, a fact evident by conventional grocers’ unwillingness to disrupt themselves by offering meal kit services, which have gained popularity. However, companies are making up for lost ground, innovation is all around and the trajectory is clearly accelerating. For all of those reasons, accurately forecasting digital sales, as FMI and Nielsen attempted to do, is problematic. Researchers in the past have consistently underestimated the pace of change because it was impossible to know how digital innovations that were yet to be developed would influence behavior. Even now, there is digital innovation occurring on the fringe that could have a huge impact on behavior. The other challenge, and why the FMI/Nielsen $100 billion forecast could prove conservative, relates to the seamless integration of physical and digital. It is a philosophy that retailers in all sectors have adopted because it is the expectation of shoppers. By 2025, the interplay between physical and digital will be so intertwined that attempting to assign a sales figures as if they are independent channels Amazon lockers are showing up in unconventional locations, such as convenience stores, where they can help generate traffic. will be impossible as well as meaningless. RL 58

Retail Leader.com MARCH/APRIL 2017

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Reducing the Noise, Sharpening the Message

A Letter from the President and CEO Leslie G. Sarasin

Viewed more simply, this proposal demonstrates the industry’s redoubling of efforts to communicate as clearly as possible with its customers via date labels.

laywright George Bernard Shaw is credited with the observation, “The single biggest problem in communication is the illusion that it has taken place.” In an economy of words, Shaw answered the human quandary of why — upon analysis — so very many difficulties and problems are summarily assessed with some version of the phrase, “there was a ‘failure to communicate.’” Given how easily miscommunication occurs — or said another way, for communication to NOT occur — the lesson is simple for us. If communication matters, we must redouble our efforts to ensure it happens, even when we think we’ve been clear. At the Jan. 29 meeting of the Trading Partner Alliance (TPA), this joint group of members of the FMI and GMA executive committees affirmed a recommendation for industrywide adoption of common product code date labeling language. This recommendation is the result of the year-long labor of a working group comprised of individuals from 25 FMI/GMA member companies, representing every food category and every aspect of food operations, including supply chain, sustainability, brand management/marketing, regulatory, government relations, food safety, consumer affairs, and quality control. The group was charged with finding suitable date label language to help reduce consumer confusion created by the divergent language

Retail Leader.com March/april 2017

currently in use, while being as sensitive as possible to consumer preferences, the impact on industry operations and potential pending legislation. Viewed more simply, this proposal demonstrates the industry’s redoubling of effort to communicate as clearly as possible with its customers via date labels. This TPA affirmed recommendation calls for voluntary industry-wide adoption of two sets of product code date labeling language: one for shelf stable items, when the date is for communicating quality issues, and another for certain items when the date language conveys guidance regarding material degradation of product performance or the Continued on page 63

June 11-13, 2017 Chicago, IL The future of the industry, the future of your career, starts here. The swift transformations we see business, society and, more speciďŹ cally, the food retailing industry moving through demand a new leadership paradigm.

The 2017 FMI Future Leaders eXperience is a vital revisioning that will give high-potential industry employees the opportunity to step away from their daily routines and hone the skills that will be required as they take over leadership posts in their stores, their companies and their industry.

Reinvigorate your rising stars and register a group for the FMI Future Leaders eXperience.

www.fmi.org/futureleaders

FMI CEO Testifies on Important Retail Role in SNAP

he following is testimony from Food Marketing Institute (FMI) President and Chief Executive Officer Leslie G. Sarasin during a Feb. 16 U.S. House of Representatives Agriculture Committee hearing on the operations of the Supplemental Nutrition Assistance Program (SNAP) and the differences between a short-term hunger program as contemplated in SNAP, and a longer-term nutrition program as intended in the Special Supplemental Nutrition Program (WIC). Food RetaiL RoLe

Grocers play an important role in the efficient delivery of safe, affordable food for both SNAP and WIC. We appreciate this committee’s work to better understand SNAP. Becoming an authorized SNAP retailer is a complicated process. Retailers must submit specified paperwork and credentials and adhere strictly to the SNAP operating rules and ongoing training for their associates. Violation of SNAP operating rules results in revocation of both the SNAP and WIC licenses. SNAP-authorized stores code all products within the electronic checkout system as either SNAP eligible or ineligible. When an eligible item is scanned, the system deducts the product’s price from the customer’s SNAP EBT card. When an ineligible item is scanned, the cashier is prompted to ask the customer for another form of payment. Approximately 50% of SNAP transactions are multi-tendered such that another form of payment is also used to pay for non-food items, ineligible products, or eligible food items that exceed the balance on the SNAP EBT card. Within the electronic systems, WIC-eligible items are charged against that benefit first, followed by those eligible for SNAP, and finally, the cashier must collect another form of payment — cash, check, debit or credit — for all remaining items. Grocery transactions for SNAP customers vary significantly throughout the month. Data indicate the first transaction of the month is usually the largest and may contain larger quantities of protein and perishables. By the last week of the month, customers typically purchase maximum calories at minimum cost. Need FoR SouNd PubLic PoLicy

We appreciate the Committee’s recognition of the role grocers play in the SNAP program. FMI has announced a new industry SNAP Task Force to identify areas where the program works well and to consider those that may require improvement. Some suggest that limiting what customers can buy with 62

Retail Leader.com March/april 2017

SNAP, making it more like WIC, may help achieve these goals. Doing so would place a tremendous burden, both on USDA and on food retailers, and likely would not achieve policy goals. Please consider two recent examples from the WIC program. When USDA began the fresh fruits and vegetables cash value voucher program, it subjectively decided all fresh fruits and vegetables were eligible except the white potato. As many of you will recall, this “ban” on white potatoes unleashed a great debate throughout Congress and industry. In the end after more than a year of debate and consideration of actual science, USDA reversed the ban to allow white potatoes to be purchased in WIC. This was 1 item out of the tens of thousands found in each of our member stores that would have to be studied and debated before USDA can make a determination of whether it should be “in” or “out.” Second, if our goal with SNAP is to provide short-term lifelines to needy Americans so they can get and keep a job to earn enough to support their families without government benefits, such limitations seem unlikely to help accomplish that goal at a reasonable cost. Doing so will require additional USDA staff to make these decisions for all products currently in market as well as the estimated 20,000 new products introduced every year. USDA would also need to maintain a real-time list downloadable to every electronic payments system in the country. I should note that in 2004, Congress directed USDA to create an electronically-downloadable real time UPC database for all WIC eligible foods. Today retailers are still waiting for this list. The fact that nearly 13 years later we’re still waiting for the list shows the complexity of creating and

keeping one updated in real-time, even for a list of products as small as WIC’s. A similar SNAP database would include more than 100 times the number of products included in WIC and is an absolute necessity to achieve real time determinations on the 20,000 products introduced each year. Could it be done? Probably so. But if it hasn’t been done in the WIC context in spite of a 13-year-old congressional directive, it likely wouldn’t be easy or inexpensive. We must also note that 82 percent of all SNAP benefits in FY2015 went to households that included a child, an elderly person or a person with disabilities. Finally, FMI member companies are the largest contributors to our nation’s food banks. In 2016, food retailers donated more than 1.3 billion of the 4 billion meals provided by Feeding America to families in need. We’re also constantly developing new ways to enhance this donation level by decreasing food waste. In fact, we’ve spent much of the past year working with our supplier partners at the Grocery Manufacturers Association (GMA) to reduce customer confusion on product date labels, frequently misunderstood to be expiration dates.” FMI

Sharpening the Message Continued from page 60

possibility of food safety concerns. The focus of this proposal was to reach agreement on the product code date language to be used. However, reaching agreement on the words is not the end of the journey. There is much work to be done regarding: 1) clarification of what falls into the two categories, particularly the latter; 2) determination of the industry posture toward federal legislation to address this issue; and 3) creation of a consumer education campaign to support and amplify the industry’s efforts at communicating clearly. The working group will continue to monitor ongoing work in these three work streams. We cannot rest until we are confident we are “communicating,” and doing so clearly. FMI

FMI Government Relations and Food Safety 2017 Priorities

ach year, FMI’s Government Relations department surveys its member companies to understand which policy issues are top of mind, legislative priorities, and how FMI can enhance our voice for food retail in Washington, D.C. At the same time, FMI’s Food Protection Committee undertakes a similar process to determine

its annual priorities, which typically mirror the top issues that the industry is facing in food safety and will be the focus of the committee’s time and resources to develop programs and materials that will make a measurable impact in retail food safety. Here are the top government relations and food safety priorities for 2017:

GOVERNMENT RELATIONS 2017 PRIORITIES:

FOOD SAFETY 2017 PRIORITIES:

Ý Tax Reform

Ý Food Safety Modernization Act (FSMA) Implementation and Compliance

Ý Fixes to Affordable Care Act / Health Care Reform

Ý Menu Labeling and Enforcement

Ý Swipe Fee Reform/Preservation of Debit Reforms

Ý Recalls

Ý Labor Policy

Ý Cleaning and Sanitation Practices

Ý Listeria Prevention at Retail

Ý Menu Labeling Ý Food Safety/Food Safety Modernization Act (FSMA) Ý Pension Reform Ý Food Assistance: Protect SNAP and WIC

Learn more and find resources at www.fmi.org.

MARCH/APRIL 2017 Retail Leader.com

> TECHNOLOGY INSIGHTS

Rise of the CHATBOTS RETAILERS EMBRACE CONVERSATIONAL COMMERCE.

The new world of conversational commerce was born in late 2014 with the launch of Amazon Echo and the Alexa chatbot platform. It began as a trial to Amazon Prime members that extended into 2015 and became available to everyone later that year. In early 2016, the Echo and Alexa appeared in Amazon’s first-ever Super Bowl ad and sales have topped 5.5 million units. Clearly, consumers are excited about the prospect of talking to the internet and retailers are suddenly seeing commercial possibilities. Facebook, Google and Microsoft launched major solutions that demonstrated how machine learning and Natural Language Processing (NLP) have made huge leaps forward. Artificial intelligence (AI) has simultaneously become cool and chatbots are a perfect way to tap into AI’s enormous potential. In addition, open source communities and vendors have matured to the point where third-party API’s (application program interface) for creating and managing chatbots have become readily available. In an incredibly short period, a chatbot ecosystem has emerged that is putting the technology within easy reach of developers. What all this means is that startups are rapidly emerging that can integrate NLP and AI logic into chatbots and produce solutions that rival those developed by the mega-tech companies.

> By Joe Skorupa

Victoria Secret PINK has a Kik chatbot that enables teenage girls to find the perfect bra. Teens answer a few questions about their current bra fit Tommy Hilfiger’s TMY.GRL on Facebook Messenger promotes Tommy’s fashion line for supermodel Gigi Hadid. Fashionistas can learn about Gigi, access behind-the-scenes content, and shop. H&M’s Kik bot offers teens outfit inspiration and on-demand personal styling. The bot pulls from H&M’s product lines to build a whole outfit. Burberry’s Facebook Messenger bot shares new collections and doubles as a live customer service portal. It also invites users to explore clothing and view sketches of its clothing lines

1-800-Flowers rolled out one of the first bots on Facebook Messenger, which allows users to send flowers and gifts, make gift suggestions, process orders, and send shipping updates.

Sephora is in a chatbot class all by itself. It started with a Kik bot that shares makeup recommendations, videos, tutorials and tips for eyes, lips, face, hair and nails. It then launched a Facebook Messenger chatbot called Sephora Virtual Artist that allows users to upload a selfie and try on different lip colors, which has received more than four million visits. Recently it launched the Sephora Reservation Assistant on Facebook that uses natural language processing to book makeover appointments. Each of these bots can process orders. The list of retail chatbots is so long now that retailers without one should begin to wonder why not. And retailers aren’t the only ones using chatbots. Use cases extend far beyond retail and into banking, travel, entertainment, healthcare, and consumer goods. For conversational commerce to work it really does not matter if consumers are chatting with a human or a bot if three criteria are met: they get useful information, the experience is convenient, and the interaction is not annoying. Studies dating back to the 1960s have shown that if these three criteria are met humans show no reluctance to engage with computers. It has taken many decades for the technology to mature into chatbots that retailers can confidently deploy for conversational commerce, but that day has clearly arrived. RL

eBay has the ShopBot smart personal shopping assistant that helps visitors find the best deals.

Joe Skorupa is editorial director of RIS News, a sister publication of Retail Leader.

WHO IS DOING WHAT? The big four voice-command platforms are Apple Siri, Amazon Alexa, Google Home and Microsoft Cortana. Each has functions that operate like a personal assistant, one who is always ready to help consumers via voice commands and operate at scale. The messaging platform Kik, aimed at teenagers, and Facebook Messenger actively encourage and support creation of chatbots. Thousands of chatbots have sprung up on these platforms in less than a year. Retailers that have made the leap into chatbots, using either voice command or text messaging, include: Whole Foods allows users to search for recipes and find store locations. More than 50% of its recipe searches happen in grocery store aisles.

Macy’s On Call answers common customer questions, such as where to find specific products and is available in both English and Spanish.

Retail Leader.com MARCH/APRIL 2017

The RL ReseaRch RepoRT ECommErCE trEnds:

Stores remain relevant, while shoppers embrace digital It’s not hard to remember a time where grocers competed with other grocers, consumers made weekly trips to the store, and they could only find out what was on sale by checking out the circular. Those days are forever gone, as now grocers compete with everyone from drug to dollar to e-tailers. younger generations have replaced weekly trips with more frequent stops at the store as well as making online ordering part of their routine. People can find out what is on sale on any given day, not just weekly, by engaging with digital media like mobile apps and retailer websites. Getting ahead of technology shifts that are impacting the various segments of your target audience can help inform strategy. Increase in online purchases: Adoption of online shopping for consumables is on the rise. Twenty-six percent of respondents to our recent Shopper Insight Survey in August indicated they buy CPG items online. only a year ago that number was 13%, according to our 2015 survey. So what is driving this behavior? one word: convenience — 40% of respondents indicated that ordering grocery items online saves time. In fact, one in four 21-29 year olds think buying groceries online is more convenient than going in-store. Mobile creating a stir: How are people engaged while they are shopping? Judging from the number of instances where people are trying to walk down an aisle and it’s being blocked by someone on their phone, there is a lot of opportunity in mobile marketing. Market Track’s survey indicated the younger end of the demographic scale is most heavily participating, with 34% of 21-29 year olds indicating they are using their smartphone while grocery shopping. Most said they are either looking for additional discounts or checking their list. The power of being able to message them while in the store can provide a competitive advantage. Bonus—mobile causes unplanned purchases: over 60% of respondents indicated that a mobile offer has caused them to alter course in their shopping journey, changing what they bought or where they shopped. The confluence of the digital and physical realms allows for in-the-moment tactics that can create opportunity.

If there were no difference in price and if it was available in your area, for your grocery purchases, which option do you most prefer? 31%

30% 25

23% 21%

20 17%

19%

18% 16%

16%

15%

21%

19%

19% 17%

13%13%

9% 5%

5 0 18-20

21-29

30-39

40-49

50-59

60 and over

Have you ever ordered groceries online to be delivered? 29%

25% 20

19% 16%

12%

11%

13%

10 5 0

18-20

21-29

30-39

40-49

50-59

What would cause you to shop more for groceries online? 30%

60 and over

33%

30%

25 20 15%

10%

8% 5%

5 0 Better prices than in store

Convenience Convenience of delivery of picking up at store

Time savings

Special promotions available online only

I would never shop online for groceries

March/april 2017 Retail Leader.com

> WHAT’S NEXT...

Not if, but WHEN

DECLINING CONSUMPTION AND EMERGING TECHNOLOGIES READY TO ROCK FOOD RETAILING.

We often profess to be surprised, even shocked, by things that were eminently predictable. Our industry is facing two such

events. While we don’t know their timing, it is eminently predictable that these events will occur. Like a rubber band slowly being pulled back, the longer it takes and the further the band is pulled back, the harder it will eventually snap and the more extreme the resulting disruption. The food retailing industry is facing two such events: 1. Food consumption per capita in the U.S. will decline in the coming years at a rate potentially greater than 10 percent. 2. Technology will disrupt the retail and food broker business in ways few have yet imagined because technology has barely begun its predictable disruption of our industries. First, consider that we Americans waste about 40% of our food and much of this waste occurs at the consumer level rather than in production. “Post store” consumer waste in the U.S. is significantly higher than in Europe even though caloric consumption per capita and economic factors are relatively similar. What if our post shelf food waste were reduced to Europe’s level? Well, it’s already happening. Federal data says millennials are spending about 22% less on groceries per capita than the same age group in the 1990s. Caloric consumption for this group has not changed over that time so one might posit that this reduction in food waste and resultant consumption decline among millennials has already begun. If so, we are at the beginning of a major disruption to our industry. And, it is an eminently predictable outcome that will probably be reported in a few years as a surprise. Another behavioral shift underway relates to automobile usage. A futurist speaker at an Ohio University conference a few

Retail Leader.com MARCH/APRIL 2017

> By John Linehan

years ago shared data showing that only 69% of 19-yearolds who can drive a car hold a driver’s license and most of those who did not have one had no intention of getting one, ever. These shifts in behavior have huge implications for grocery stores in terms of overall consumption, trip frequency transaction size and operating models. Second, technology has barely begun to impact our industry. We are bewitched by the shift in center store sales to e-commerce resulting from both technology and logistics disruptions as well as the resultant change in consumer behavior. And, we read about Amazon’s GO stores and assume they are a clear glimpse into the future of retail technology. But, the technology Amazon is using combines a fair amount of old stuff (RFID, Bluetooth, etc.) with some new tech such as deep learning for tracking and recognition and they are brute forcing it into their GO stores. That’s all small stuff. Much more powerful, graceful and disruptive technology is being created today especially in the areas of artificial intelligence and deep learning. For example, a company called Focal Systems in Silicon Valley is poised to disrupt the traditional broker business. Founded by a group of mostly Stanford engineers with experience ranging from secret projects at Apple to redesigning missile guidance systems, Focal Systems has developed AI and DL systems that, through an iPad-like device attached to the cart, “learns” the store down to knowing where every SKU and unit tag resides. This system can do many of the tasks performed by the roughly 100,000 broker representatives. And as tends to be the case with technology, the system will perform those task cheaper, more accurately and in real time. In addition, the devices interact with consumers in ways never dreamed of by most retailers. They can make the shopper experience much more engaging resulting in bigger basket size and no checkout necessary because the devices know what’s in every cart all the time. There is already evidence that these changes, and many others, are coming to food retailing. It’s really just a matter of when. RL John Linehan is Executive Vice President at King’s Hawaiian.

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