Amazon Go

Amazon Go seen as welcome grocery option

But not all Americans would embrace cashier-free retail concept, survey says

Russell Redman 1 | Jul 02, 2018

Though Amazon.com Inc. is just getting under way with its Amazon Go stores, a new study finds that U.S. grocery shoppers are open to the cashierless retail concept.

Nearly 75% of 1,000 U.S. consumers polled by marketing firm Digital Third Coast for Schorr Packaging Corp. said they would be “extremely likely” or “very likely” to shop at an Amazon Go store if one opened nearby. What’s more, 84% of respondents indicated they would enjoy the Amazon Go customer experience more than conventional grocery shopping.

The checkout-free technology of the Amazon Go stores carries a lot of weight with consumers, the survey revealed. More than 25% of those polled said they would pay more for their groceries if they didn’t have to wait in line at the register.

Meanwhile, brands carry less weight: 32% of respondents said they would have less brand-specific preferences in an Amazon Go store.

“Amazon recently announced a futuristic take on the traditional grocery store, dubbed Amazon Go. It’s unknown how this will impact the brick-and-mortar retail industry, which is why we surveyed 1,000 Americans for their take on how Amazon Go will impact their lives, shopping habits and purchase decisions,” Aurora, Ill.-based Schorr Packaging stated in the study.

In January, Amazon opened the first Amazon Go store in Seattle. The e-tail giant confirmed that two more of the convenience-focused stores are planned for Chicago and San Francisco but hasn’t disclosed a timetable or details about the openings.

The 1,800-square-foot Amazon Go in Seattle carries primarily food and beverages, although nonfood items like batteries and over-the-counter medicine also are available. Food offerings include ready-to-eat breakfast, lunch, dinner and snack options made by the company’s chefs and local kitchens and bakeries.

The grocery mix ranges from essentials such as bread and milk to artisan cheeses and locally made chocolates. Also offered are chef-designed Amazon Meal Kits, which the company said enable consumers to make a meal for two in about 30 minutes.

Amazon’s “Just Walk Out” technology drives the Amazon Go store’s cashierless shopping experience. Overhead cameras, weight sensors and deep learning technology detect merchandise that shoppers take from or return to shelves and keep track of the items selected in a virtual cart. Shoppers use the Amazon Go mobile app to gain entry to the store through a turnstile. When customers leave the store, the Just Walk Out technology automatically debits their Amazon account for the items they take and then sends a receipt to the app.

The Schorr/Digital Third Coast survey found that this tech-heavy shopping experience doesn’t appeal to everyone, particularly older consumers. More than 30% of the Baby Boomers polled said they would be “somewhat likely” or “not likely” to shop at an Amazon Go store if one opened nearby. Also, 20% of respondents reported that they feel like they would be “losing out on something” by shopping at an Amazon Go store versus a traditional supermarket.

When consumers were asked to name the biggest drawback of shopping at Amazon Go compared with a conventional grocery store, 34% cited the lack of ability to use coupons. The next most-cited drawbacks were lack of product selection (29%), lack of social interaction (24%) and not being able to pay with cash (12.5%).

“Not everyone is on board — specifically, Boomers. They remain skeptical,” Schorr said. “While 75% of people surveyed said they would likely shop at an Amazon Go if one were located nearby, 30% of Baby Boomers said the opposite, that they would be unlikely to shop at Amazon Go even if it were conveniently located.”

The findings about Amazon Go reflected general preferences about grocery shopping uncovered in the study. Asked to rank the top factors influencing where they shop for groceries, respondents named freshness and quality, price, speed of shopping, availability of certain brands and location in order of importance.

In meeting their needs, 86% of consumers surveyed said they shop at one to two grocery stores in a single shopping trip. Brands didn’t have much sway, however, in determining where they shop for groceries.

“Presumably, people shop at multiple stores to make sure they get the goods and brands they prefer. But what’s interesting is what we uncovered in the survey: 75% of respondents said that, in theory, they would shop at a grocery store despite it not carrying their favorite brands,” Schorr noted. “In fact, only 13% of respondents said that it was extremely important to them for a grocery store to carry their favorite brands.”

Still, one in four of those polled said better-designed packaging would affect their purchasing decisions in an Amazon Go store. Other packaging-related factors that consumers said would influence their Amazon Go purchasing decisions would be discounts and promotions on the packaging (57%), clearer messaging (24%), unique design (17%), and larger logos and brand presence on the label (2%). Thirty-five percent of Boomers indicated they were more interested in product variety than packaging.

Trojan Horse: Instacart

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The Trojan Horse: Will Instacart Become A Competitor Of The Grocery Retailers It Serves?

Brittain Ladd , CONTRIBUTOR Opinions expressed by Forbes Contributors are their own.

InstaCart employees fulfill orders for delivery to customers. Photographer: Patrick T. Fallon/Bloomberg

True story: Sam Walton, the founder of Walmart, is famous for using the phrase “steal shamelessly” when it came to keeping a close eye on competitors and applying the lessons learned to make Walmart a better company. Sam even wrote openly about stealing ideas in his 1993 autobiography Sam Walton: Made in America.

When Walmart was founded in 1962, its biggest competitor was Kmart. Being naturally curious and competitive, Sam made the decision that he was going to learn everything possible about how Kmart operated. Sam’s chosen method for learning? Go inside as many Kmart stores as possible to look around, and establish a relationship with executives from Kmart.

Sam Walton understood the importance of data to a retailer better than anyone. Data as it related to store operations, pricing, supply chain, technology, organizational structure, supplier relations, product assortment, promotions, consumer behavior and especially customer experience.

Walking into as many Kmart stores as he wanted and openly discussing retail with Kmart executives provided Sam with exactly the data he desired. Having unlimited access to Kmart allowed Sam to learn the two most important lessons about the company—its strengths and weaknesses.

And what did Sam do with the knowledge he gained? He modified Walmart’s business model to create a company that outperformed Kmart at every level, resulting in Kmart losing all relevance. Specific details on how Walmart grew can be found in the book Walmart: Key Insights and Practical Lessons from the World’s Largest Retail.

Sam Walton — the founder of Walmart and arguably the most influential and capable executive in the history of the retail industry. (1985)(AP Photo)

The Trojan Horse

Fast forward to 2018 and once again we are experiencing a repeat of the process utilized by Sam Walton to decimate Kmart. This time the company so deftly gaining access to retailer is Instacart, which recently announced it is expanding into another city.

Instacart requires a grocery retailer to provide them with certain data and access so Instacart can set up the grocery retailer within its core systems. Retailers invite Instacart inside their four walls and voluntarily provide them with data whereas Sam Walton had to often use his wits and charm to get the information he wanted. Kmart wasn’t concerned about Walton as it didn’t view him or Walmart as a threat.

Grocery retailers have embraced Instacart as few grocery executives believe Instacart will ever become a competitor. Kmart was wrong about Sam. Are grocery retailers wrong about Instacart? If so, Instacart is operating in a fashion like the famous Trojan Horse in Greek mythology as grocery retailers are enthusiastically inviting in an entity with the potential to become a major competitor.

I strongly advise the grocery industry to crush all assumptions that Instacart will look and operate the same way three to five years from now. In fact, the mantra I live by is Crush All Assumptions about business in general. Case in point: How many grocery executives thought Amazon would acquire Whole Foods? What prevents Instacart from changing its business model? Nothing.

Instacart will have no choice but to expand its business model to survive. Amazon is accelerating the expansion of Prime Now for grocery delivery and Target has accelerated the expansion of Shipt to deliver groceries and general merchandise.

Sooner rather than later, the grocery delivery and online order fulfillment services provided by Instacart will become a commodity business as more third-party delivery companies enter the market, and established third-party delivery companies expand.

Instacart attempting to add more services to current customers and signing up small regional grocery retailers to add scale is not a strategy that will insulate Instacart from disruption.

Kroger’s partnership with Ocado will allow Kroger to end or greatly scale back their relationship with Instacart and other third parties for grocery delivery. I anticipate that many grocery retailers will copy what Kroger is doing and this will impact Instacart.

CommonSense Robotics will become the go-to company for retailers looking for an automated solution to fulfill online grocery orders as well as meet demand for groceries in rural and urban areas. CommonSense Robotics can even build and operate sites capable of performing a dual role – fulfilling online grocery orders and building pallets to replenish groceries to retail stores.

Grocery retailers that want to replace Instacart can turn to Delivery Solutions, a Texas-based technology company that can help enable an intelligent, orchestrated mix of in-house and third-party delivery capabilities. Many grocery retailers have come to realize that owning the last mile and maintaining a direct relationship with its customers is more strategic than outsourcing last-mile deliveries. Delivery Solutions gives command and control of the customer experience back to the grocery retailer.

Instacart is under pressure due to the myriad of changes taking place in the grocery industry that are directly affecting the retailers served by Instacart. Instacart must adapt. Below are options Instacart could consider:

1. Get acquired. Google, Facebook, Microsoft, Walmart or Cerberus Capital Management, among others, could acquire Instacart and create a re-imagined experience for groceries. Cerberus owns the grocery retailer Albertsons and is in the process of attempting to acquire Rite Aid. If given the choice of acquiring Rite Aid or Instacart, Albertsons should acquire Instacart. I believe Instacart, Boxed Wholesale and Sprouts are vastly more strategic to Albertsons than Rite Aid.

2. Instacart can sign a strategic partnership with or acquire Boxed Wholesale or any number of grocery distribution and product manufacturing companies. If Instacart and Boxed team up, the combined companies could expand deeper into grocery retailing, B2B and B2C bulk sales and distribution, private label grocery and CPG manufacturing, wholesale grocery distribution, etc. (Full disclosure: I recommended to Kroger in 2017 to acquire Boxed Wholesale with final instructions to be prepared to bid as high as $600 million to acquire Boxed. With an estimated value of $470 million, Boxed turned down Kroger’s offer of $400 million.)

3. Instacart can sign a strategic agreement with or acquire CommonSense Robotics. A combined CommonSense Robotics and Instacart offers very interesting possibilities for the grocery industry.

4. If able to raise the required capital, which Instacart has proven it can do, Instacart could acquire the online retailer Peapod from Ahold Delhaize. Peapod has exceptional opportunities for innovation and growth whether owned by Instacart or Ahold Delhaize.

5. Leading CPG companies would be wise to consider acquiring Instacart and copying the Walmart model. Walmart acquired Jet.Com to gain access to technology and a team of executives under the leadership of Marc Lore, who could breathe new life into Walmart’s stagnant e-commerce business. It worked. Instacart’s executive team is like the one at Jet.Com—visionary, smart and capable—and they would add tremendous value to a CPG company looking for ways to ignite innovation and growth.

I believe Instacart has every intention of exploiting its technology and business prowess to the fullest to grow and remain relevant. It is entirely plausible that Instacart, under the right circumstances, could open innovative Instacart-branded stores—especially if Albertsons acquires Instacart.

I’m not attempting to predict what Instacart will do, I am merely pointing out the fact that Instacart has options they can pursue to change and expand its business model.

The Ghost of Sam Walton

Aldi, Sam’s Club, Costco, Kroger, Whole Foods, Ahold Delhaize, Publix, Supervalu, Wegmans and Albertsons are all customers of Instacart. The retailers I listed just happen to be the leading grocery retailers in the United States and in the case of Aldi and Ahold Delhaize, global grocery leaders. Instacart serves over 200 grocery partners in the U.S. and Canada. Should the executives at these retailers consider the possibility that Instacart could become a competitor? Yes, they should and here’s why:

Instacart is analyzing and learning how the retailers it serves operate across every aspect of grocery retailing. Or, stated another way, grocery retailers are teaching Instacart their business models.
Instacart is learning everything possible about the consumer behavior of the customers at each grocery retailer that has a contract with Instacart.
Instacart is thoroughly identifying the strengths and weaknesses of each grocery retailer they serve.
Instacart is the leveraging data it has collected to perform long-term strategic planning and “What If?” analysis to identify the optimal future state grocery-store format, technology, operating model, pricing, assortment and supply chain to delight customers across the grocery industry.
Instacart’s highly-skilled executive team isn’t satisfied with the status quo and the team will modify the business model to position Instacart for growth and relevance—this means applying the lessons they’ve learned from the grocery companies they serve to their advantage.

My advice to grocery executives who don’t believe Instacart may one day become a competitor is to learn from the past. Kmart executives used to sit and drink coffee with Sam Walton, someone they viewed as nothing more than a folksy CEO of a small company named Walmart who wanted to learn everything possible about how Kmart operated as a company. Walmart went on to become Kmart’s most formidable competitor by applying the lessons Sam learned from Kmart and other retailers. The ghost of Sam Walton lives on.

Brittain Ladd is a globally recognized thought leader on strategy, M&A, and the digital supply chain.

Lucky’s Market St Pete

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The St. Petersburg Lucky's Market location, ready to open this week in the Tyrone area, is 29,000 square feet.

By Ashley Gurbal Kritzer – Senior Reporter, Tampa Bay Business Journal

Jun 4, 2018, 6:04pm

The glass deli cases at Lucky’s Market in St. Petersburg are lined with just about everything but cold cuts: Potato-kale cakes, chicken and black bean quesadillas, vegan kelp noodle pad Thai, smoked turkey.

That’s because it’s not a deli, store manager Curt Rotrock says. It’s a kitchen — which is emblazoned on the wall in illuminated red block letters.

“It is a full-fledged kitchen inside of Lucky’s Market,” Rotrock said. “Everything here is made from a recipe. It’s not poured out of a container. They’re assembled in-house.”

Colorado-based Lucky’s Market will officially open the St. Pete store — the first in the city and the second in the Tampa Bay region — on June 6, on the end of the Tyrone Square Mall that was once home to a Sears department store. The store opens at 7 a.m., and at 10 a.m., the opening is marked with a bacon-cutting ceremony, meant to celebrate the bacon that Lucky’s smokes on-site.

It is the 13th Lucky’s location in Florida; in the next three years, Lucky’s has plans to open 40 more, Rotrock said.

With its eyes on 50-plus locations in the Sunshine State, Lucky’s Florida presence would be larger than Whole Foods Market Inc., which has 28 stores here, and much smaller than Lakeland-based Publix Super Markets Inc., which has more than 800 stores in its home state.

But Lucky’s financial backing makes it more than a niche player: Grocery powerhouse Kroger Co. entered a “strategic partnership” with Lucky’s in 2016.

“Right now, they’re basically a vehicle to help us grow, but as far as determining what we do, they leave us to run our organization,” Rotrock, an industry veteran who worked for Sweetbay and then Winn-Dixie, said.

• • •

Lucky’s aims to bring together the best of a specialty grocer — like the private labels and quirky finds that Trader Joe’s offers — with the convenience and wide selection of a mainstream store like Publix. The prepared foods section goes beyond the typical fare like potato salad; there are pre-bagged meals for two, house-made chips and guacamole, chicken tenders, empanadas, mac and cheese and more.

At a time when the grocery market is looking to maximize convenience, rolling out online ordering, curbside pickup and delivery, Lucky’s operates at the opposite end of the spectrum. The company — founded by husband-and-wife chefs Bo and Trish Sharon — wants to make grocery shopping an “event,” Rotrock says.

The experiential approach to grocery isn’t new; New York-based Wegmans Food Markets has created a cult following by building gigantic stores, upward of 100,000 square feet, with massive prepared food sections and, in some stores, full-service restaurants.

Lucky’s has taken that model and shrunken it to fit a real estate print that’s much more attainable, with aggressively competitive pricing, billing itself as “organic for the 99 percent.” (A sign in the in-store cafe declares that “Good food is not a luxury. It’s a right.”) Most Lucky’s stores are under 30,000 square feet — less than one-third the size of Wegmans — but still manage to offer full produce, meat, dairy and pantry selections alongside in-store prepared foods that include a ramen and sushi bar. An apothecary with essential oils and herbs in glass jars stands alongside the supplement department.

“For most customers, grocery shopping is a chore,” Rotrock said. “We try to make it so it isn’t a chore, it’s fun, and you bring the whole family.”

Lidl Revaluates

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Lidl started opening U.S. stores a year ago, but its growth has been slower than first expected.

By Steve Watkins – Staff Reporter, Cincinnati Business Courier

5 hours ago

A year ago, the grocery world was abuzz as German deep-discounter Lidl began opening its first U.S. stores on the way to what was expected to be 100 in a year and more after that. Its growth plans left many wondering how established supermarket operators such as Kroger Co. would respond.

Now, a year later, the talk about Lidl has quieted to a whisper and the operator has just 53 U.S. stores. That’s a far cry from the hype last summer as Lidl opened its first 10 stores in June 2017 while targeting 100 within the next year.

Lidl competes largely on price. It’s similar to Aldi, another deep discounter – although Lidl boasts in-store bakeries, more fresh produce and higher levels of service.

“They came in with a pretty big splash,” Jim Hertel, senior vice president at Long Grove, Ill., food retail consultant Inmar Analytics, told me. “But I don’t know that they offer anything superior except price.”

Kroger (NYSE: KR), the nation’s largest operator of traditional supermarkets, Walmart (NYSE: WMT) and others quickly cut prices in response, making it tougher for Lidl to woo customers.

“My guess is they’re rethinking their strategy,” Hertel said. “Fifty-three stores is not what they came here to do. They have to feel they have a workable model with a scalable proposition. They might try to see their way to four digits of stores (at least 1,000) or take their ball and go home before they lose hundreds of millions of dollars.”

Lidl will continue to open more stores after opening 53 U.S. stores in six states along the East Coast since June 2017, U.S. spokesman Will Harwood said.

The grocery has abandoned plans to build stores in Cary. Leon Capital Group claims Lidl backed out on agreements to buy property and operate stores after signing an agreement, and after the firm devoted money to designing the project and developing infrastructure on the site, according a lawsuit by Leon Capital.

In Greensboro, Lidl pushed back the start of construction at a store in the Shoppes at Sedgefield Crossing from this March to September. The estimated completion is anticipated in March 2019.

“It’s been pushed back six months while they figure out some things internally,” Charlie Fulk of Meridian Realty Group, which represents The Shoppes at Sedgefield Crossing, told Triad Business Journal in March.

Sustainability when shopping 7_5_18

Retail Delivery

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How we see the future of retail delivery – and what this means for logistics

By Brian Bourke, vice president, marketing at SEKO Logistics

04/07/2018

Consumer attitudes are changing, consumer shopping behaviours are changing and technology is changing. And they’re all about to come together to change the face of retail delivery as we know it.

Which means the logistics world needs to be prepared.

Here are our top five predictions for the future of retail delivery: It will

become cheaper and quicker for the consumer; become more local; be managed by voice control; boom with new technologies; and offer an omni-channel experience.

Let’s take a closer look at these top five predictions for the future of retail delivery

Cheaper and quicker

Consumers want free deliveries. A survey of over 1,000 UK consumersfound that 94% were more likely to make an online purchase if there’s a free delivery offer, and most people expect free delivery with orders over £10.

If they had to pay, consumers said £2-£4 is a reasonable delivery fee, no matter the product retail value. But if the costs are too high, then 66.7% said they’d abandon the purchase altogether.

Consumers want their products quicker – PWC found that fast and reliable delivery (same-day and click-and-collect) matters to 29% of UK shoppers.

A different survey, by Trimble (referenced by Econsultancy), found that “even though a quarter of respondents said delivery costs were too high, 40% of shoppers were willing to pay for next-day delivery, and 22% would pay for delivery within a two-hour slot.”

What this means for logistics

Any retailers that have the profit margins to offer free delivery, should offer free delivery. Whether that’s for orders over a specific amount, like £10, for set time periods or if consumers buy two items or more, free shipping can help to convince consumers to complete purchases, and increase sales. And if offering free shipping isn’t an option, then testing a low delivery fee between £2 and £4 could prove to be an effective strategy.

Last-mile delivery makes offering quick deliveries difficult, because four things need to be in place: products need to be available locally; retailers need to have a real-time view of their inventories; finding and packing of the product needs to be speedy; and last-mile logistics providers need to be able to pick up and deliver orders ad hoc or multiple times throughout the day. If logistics retailers and logistics providers can work together to tick these four boxes, then McKinsey says: “Same-day delivery turns into a pure game of scale.”

Big e-commerce giants like Amazon offer repeat customers Amazon Prime, a delivery subscription service where consumers pay £79 a year or £7.99 a month for free one-day delivery, priority delivery, standard delivery, same-day delivery and more. Consumers are happy to pay in exchange for speedy deliver times.

Payment service providers like Klarna are offering a try-before-you-buy payment structure – offering customers an order now, pay after delivery solution. If you’re like asos and KNOMO, and you offer free delivery, this means consumers can order items (up to a certain amount) through Klarna, get them delivered for free and try the item on at home before committing. They can then decide to either pay for the item 30 days after shipment, or send it back, again for free.

More local

Thanks to the rise in mobile usage and the immediate internet access this has given consumers, searches for purchasing influencers like stock information, offers and opening times are becoming more focused on location.

Google says words like “near me”, “closest” and “nearby” are becoming more common in searches, with 30% of all mobile searches related to location. And, of those consumers searching locally on their smartphone, 76% visit a store within a day, and 28% of those searches lead to a purchase within a day (Think with Google).

What this means for logistics

Local searchers have high purchasing intent and logistics providers and retailers need to work together to make sure warehouses are well-stocked and close enough to stores to help deliver reserved items and orders, and to keep stores in constant supply.

Retailers like Argos offer ‘Check & Reserve’ to consumers looking for a particular item in their local store, and give them the option to reserve their item without payment, where they’ll then complete the purchase by the end of the next working day. They also offer Fast Track reservation online, for same-day, instore pick-up and delivery on 1,000s of items. If items are out of stock in the local store, then consumers can ask for an alert to let them know when the item is available for purchase at a local Argos – helping the retailer recapture the local buyer’s purchase intent. Logistics providers need to be set up to travel between branches to locate products and retrieve stock from warehouses that are located further away.

Voice control

Voice search will play a big part in the consumer purchase and logistics fulfilment journeys. Walker Sands polled over 1,600 consumers and found that 19% had already made a purchase using a voice-controlled device in the past 12 months. The poll results also suggested that voice search was more of a channel for millennials, with 37% saying “they always or often shop online via voice-controlled devices”, and 43% have made a purchase using voice in the past year.

What this means for logistics

If consumers are making purchases via voice search, they’ll likely expect the rest of the purchase funnel to also offer a voice search option. Which means that logistics companies need to optimise their delivery updates and returns processing to integrate this technology. If a consumer wants to know where their order is, and they ask their voice assistant, logistics companies need to respond via voice.

Logistics companies will be able to use voice search to help them manage deliveries, plan delivery routes, schedule deliveries and assign delivery runs to drivers. This kind of automation could also help to cut back on logistics operational costs.

New technologies

Make-up retailers like L’Oréal are already using apps like Makeup Geniusto let consumers virtually try makeup before buying, and more brands, like Sephora and Charlotte Tilbury, are following suit.

Ted Baker has already experimented with a virtual reality digital concept store in Shoreditch, giving visitors a look at clothing items in closer detail and a chance to play games or watch films and interact with the Ted Baker surroundings.

Augmented and virtual reality make it easier to virtually do things, like try clothes for size and see how large consumer devices might look in the home. The sense of not being able to see or touch an object will become less of a problem, and that will help to reduce buyer hesitation. With an easier product journey and fewer obstacles, technological advancements will help to facilitate more online orders.

What this means for logistics

Logistics providers should also take advantage of augmented and virtual reality technology to help meet the increasing number of online orders, and transform the world of logistics.

Augmented reality can help logistics providers better plan warehouse layouts to make finding orders easier, and it can also help workers locate packages ready for shipping. Augmented reality can also help make final-mile delivery easier for drivers, helping to pack lorries and navigate to destinations (read more on augmented reality and how it’ll transform logistics in Supply Chain 24|7).

A more realistic view of how items of clothing, make up and jewellery will look for consumers should, in theory, offer a realistic and decisive shopping experience – helping to reduce the number of online orders being returned.

Logistics providers like SEKO are already researching and implementing new technologies into the process. We deploy 3D load optimisation software for inbound containers for optimised stock replenishment. We don’t see drones launching at scale in most major markets for final-mile deliveries, but we are actively researching drones for use within the warehouse for more optimal picking of low-turning SKUs on the highest out-of-reach shelves.

An omni-channel experience

Consumers are creating and managing orders and returns across channels, and retailers will need to offer a consistent customer experience at every touchpoint.

From chatbots to email, social media, phone and more, channels need to be working together and giving the same message to help generate orders and offer the best customer experience.

Retailers need to be working with logistics providers to make sure they’re offering the same message and the same customer experience to help generate more orders for their retail partner.

What this means for logistics

The omni-channel shopper needs an omni-channel logistics solution. By working with retailers and offering visibility across communication channels, and offering real-time fulfilment options to help their customers and decide on the best fulfilment location, logistics providers can be sure orders will arrive at the right place, at the right time.

And, because retailers will need to share information with logistics providers to offer an omni-channel experience, both parties will need to make sure they’re keeping customer data safe with a cryptocurrency technology such as blockchain.

Imagine a logistics world where “every time a product changes hands, the transaction could be documented, creating a permanent history of a product from manufacture to sale. This could dramatically reduce time delays, added costs, and human error that plague transactions today” (Supply Chain 24|7).

SEKO is already using technology solutions like interactive voice response (IVR) for automated outbound calls and delivery scheduling, and immediate proof of delivery via an app to respond to changing consumer behaviours.

Buc ee’s

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We visited a convenience-store chain with a Texas cult following, and we were amazed by what we found

Hollis Johnson and Kate Taylor

Buc-ee’s is a convenience-store chain with a cult following across Texas.
The chain serves as a super-sized highway pit stop complete with “world-famous” bathrooms, branded t-shirts, a beef jerky bar, a wide-ranging home decor section, and fresh-made fudge.
We visited Texas to see if Buc-ee’s could live up to the hype, and were shocked by what we found.

If you’re on a road trip traveling through Texas, Buc-ee’s looms large as a mythical highway oasis — and not just because of the endless signs along the road, telling travelers how many miles until the nearest location appears on the horizon.

Much like Pennsylvanians worship at the altar of Wawa, the gas-station chain Buc-ee’s is answer to hungry road trippers’ prayers across the Lone Star State.

Need gas? Buc-ee’s apparently has it cheap! Food? Chefs say their breakfast tacos are some of the best! Clothing? Per sources, Buc-ee’s t-shirts — featuring its iconic beaver mascot — are one of the trademarks of a cool Texas teen.

Despite the Texan obsession, most of the world has never even heard of Buc-ee’s. The chain, founded in 1982, has almost 40 locations.

We visited Buc-ee’s to see if it lived up to the hype. What we found was like nothing we’d ever seen before:

We rolled into the Buc-ee’s parking lot well aware of the promise that “everything is bigger in Texas.” But even the state’s self-aggrandizing did not prepare us for what was waiting inside.

Walking into Buc-ee’s was like wandering into a mix of a Walmart, a barbecue-centric deli, and the Texas tourism bureau, plus a dash of the Cracker Barrel general store.

The snack aisles carry the classic road trip rations, like trail mix, dried fruit, and candy — but on a scale unseen anywhere else in the country.

There’s even a fairly large wine selection, complete with tasting and pairing notes.

Even Zima has a place on Buc-ee’s sprawling shelves. This gas station has the range.

Buc-ee’s cult status in Texas is ripe for merch.

Buc-ee’s branded food is just the start. The store also has t-shirts, stuffed animals, coolers, and even a Buc-ee’s-branded grill.

And, the home decor selection goes far beyond Buc-ee’s magnets. You want a Texas proverb wall hanging? A cowhide rug? A dozen scented candles? They’re all at Buc-ee’s.

While the food and merch is a draw, Buc-ee’s realized what people who have been on the road for hours really want: a high-quality bathroom. And Buc-ee’s earns its “world famous” moniker. The chain won an award for having the “cleanest restrooms” in 2012, and we can vouch that the judges weren’t lying: the bathrooms are private, immaculate, and remarkably spacious.

Source: Cinta

On top of all of this, Buc-ee’s has some of the best worker compensation in the industry. Every location proudly displays signs revealing employees’ pay and benefits — something that the chain uses to attract top talent.

Perhaps the most remarkable thing, however, is the prepared food selections.

Not only is there an entire jerky bar, there is also a deli, a fudge station, and a hot food prep kiosk.

Instead of being limited to stale gummy bears, at Buc-ee’s, you can have an employee cut you a fresh block of fudge, handmade on the premises.

The stunning breadth of fudge flavors are a sight for sore eyes. And, upon taste test, the fudge is as tasty as it looks — moist, high-quality sugary goodness.

Buc-ee’s sells pre-prepared hot sandwiches and tacos wrapped in foil, which customers can grab to-go.

It also features a full-service deli that has everything from sandwiches to burgers to fish.

We paid for our food — more than enough for two hungry reporters’ breakfasts — and headed outside into the sweltering heat to wolf down our haul.

The breakfast tacos were a perfectly packaged amalgamation of cheese, potato, eggs, bacon, and beans. The foil wrapping sealed in the heat, creating a well-melded breakfast begging to be devoured — not a delicacy, but a delight.

The sliced brisket sandwich is a barbecue classic that you won’t find at many gas stations.

The brisket is tender and smokey, creating the base for a simple yet strong sandwich.

On a more decadent note is the Pastrami Reuben, a Buc-ee’s fan favorite. It’s not a natural fit for a road trip, as the overflowing sauerkraut and pastrami make it a two-hand kind of meal.

However, it’s worth the extra attention. The pretzel bun, onion strings, and bacon make for a hearty sandwich that delivers on the promise of a satisfying Reuben.

The handmade chips aren’t your average kettle chip. Despite being unsalted, they draw you in and keep you crunching until the bag is suddenly … empty.

Our appetites satiated, we decided to partake in Buc-ee’s final major draw: cheap gas. The gas pumps were plentiful — we counted at least 40 — and the gas was at least 10 cents cheaper than at the station down the street.

We hit the road after visiting Buc-ee’s with full stomachs and a full tank of gas. While the road trip continued, Buc-ee’s is no pit stop. It’s a destination in its own right.

Bananas

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How ripe should a banana be?

A new snap that has gone viral on Instagram shows a bunch of bananas, all at different levels of ripeness. They are all labelled from numbers one through 15, with 1 being the most under-ripe and 15 being the most over-ripe.

The image, which has more than 4,700 likes, asks people to pick your ‘perfect’ banana from the bunch – and fruit fans have wildly different stances on which number they would grab to go.

The majority of banana fans said they would pick numbers 8 through 10 from the bunch. These fruit had no green underripe parts, with number 10 having a few brown speckles on the skin also. Some opted for a more under-ripe 6 or 7 banana, while some said they a very brown and speckled 11.

According to dailymail.co.uk, research suggests that in under-ripe bananas, starch constitutes 80-90 per cent of the carbohydrate content, which changes into free sugars as the banana ripens. When the resistant starch changes to simple sugar, a banana ripens, and studies have suggested that more ripe (yellow) bananas are easier to digest for the average person.

Titans of China Tencent

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Titans Of China Series – Volume 1: Tencent

Jul. 2, 2018 12:10 PM ET

Summary

Tencent’s ecosystem of internet businesses is absolutely incredible.

The financials are a thing of beauty which indicates the strength of the businesses.

While a possible risk is that the company could get away from its core competencies, right now the valuation looks great relative to the business prospects.

Charlie Munger, Warren Buffett’s right-hand man has been very bullish on China for a while, going as far to say that, “American investors are missing out.” With that in mind, this article is the first part of a new series labeled “Titans of China.” The first deep dive is the internet conglomerate Tencent (OTCPK:TCEHY), famous for its WeChat everything-app.

Investment Thesis

Tencent is one of the most impressive companies on the face of the planet. An incredible operating ecosystem and strong financials make the valuation tolerable.

What A Moat!

If you check out the company’s products and services page, the list goes on and on. There are too many products to go through one by one, but here is the run-down.

The operating segments are broken down into three parts: value-added services, advertising, and other.

Value-added services, which include online games and social networks, make up 64% of revenue, as reported in the latest quarter. Online games constitute 39% of sales and social networks, including WeChat and QQ, make up the remaining 25%. To give context, Tencent hauled in $11.7 billion in revenue for the first quarter.

To break it down further, in online games, Tencent bought out Riot games in 2015, the maker of the infamous League of Legends. What’s more, Tencent also has a 40% stake in Epic Games, creator of Fortnite, responsible for 40 million monthly active users (MAUs). In other words, Tencent is a behemoth in online gaming, an industry that is set to grow to $42 billion by 2022, up from $18 billion today.

Moreover, Tencent has two iconic messaging super-apps, QQ and WeChat. QQ has roughly 850 million MAUs and WeChat has over 1 billion. WeChat is the absolute standard in China. I studied in China and I can attest that everyone and their mothers use it. It is often compared to Facebook (NASDAQ:FB), but it is much more powerful. You can do everything from paying your bills to sending videos to messaging to playing games to using it as a CRM for your business. The potential is really limitless. Plus, the company is trying to innovate with an initiative called mini-programs, in an attempt to expand the app’s reach even more.

Still included in the value-added services segment are streaming and music subscriptions. As noted in this article, Tencent Video competes with iQiyi (NASDAQ:IQ) and has about 56 million subscribers. Apparently, Tencent Music is also one of the most popular streaming services in China.

The next segment is advertising, which makes up 14% of revenue. In comparison, Facebook makes more than 90% of its sales from ads. Because of this discrepancy, Tencent’s platforms have some serious untapped pricing power. To put it in perspective, Facebook’s average revenue per user (ARPU) comes out to about $20 whereas Tencent’s is around $7. This suggests Tencent has ample room to expand its advertising capabilities. Another sign of this is that the gross margin on this segment is only 31%, low compared to Facebook’s near 50% operating margin.

Next, is the ‘other’ segment, which includes payments and cloud services. TenPay and WeChat pay have bolstered growth as this segment has consistently grown in the triple digits. The company is also doubling down on cloud services, as capital expenditures increased 200% in the past quarter to buy more servers, presumably to rent out.

This is not to mention an investment arm that manages $50 billion, a bank called WeBank, and an AI-powered medical innovation center. But these projects are just fun side-jobs for the Chinese behemoth.

Source: Saber Capital Management

I wanted to go into this much detail on the individual pieces of Tencent’s business to show just how powerful it is. It is reminiscent of Amazon‘s (NASDAQ:AMZN) extreme focus on innovation. But all of this is not very useful as an investor if it doesn’t translate into formidable financials. Fortunately…

Financial Greatness

Not many companies can grow revenue nearly 50%, not to mention companies with run-rates of over $45 billion. But Tencent doesn’t grow without concern of profitability. Operating margins consistently surpass 30% and free cash flow margins follow suit. Looking at Tencent’s financials are a thing of beauty.

But the company is not resting on its laurels. Free cash flow took a relative dive in this past quarter because of investment in servers as previously noted. Even still $2 billion in quarterly free cash flow is nothing to sneeze at.

On the margins side, value-added services brought in 63% gross margins, the highest of the segments by a long shot, followed by 31% for advertising and 25% for ‘other.’ So, gross margin has actually trended down in recent years from the low 60%s to now 50%. But Tencent is playing the long game. I believe the company is cementing its strong position as a leader in numerous industries before taking full advantage of its monetization potential.

This past quarter was the first time revenue growth dipped under 50% in the past couple years, the lowest since Q1 of 2016 at 43%. Clearly, demand is strong for all of Tencent’s products. Coupled with management who is playing the long game, the future looks bright. It makes sense that management is forward thinking considering this business is led by Pony Ma, CEO and founder who still maintains a 9% stake in the business, making him China’s richestperson out of its 800 or so billionaires.

Speaking of stakes, one of Tencent’s favorite uses of cash is simply buying stakes in companies that have great technology. Just to name a few, the company owns 5% of Tesla (NASDAQ:TSLA), 5% of Activision Blizzard (NASDAQ:ATVI), 12% of Snap (NYSE:SNAP), 15% of JD.com (NASDAQ:JD), 20% of 58.com (NYSE:WUBA), and too many others to include. Tencent doesn’t let much cash build up on its balance sheet, taking a different strategy than U.S. companies like Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). Tencent’s net cash is only about $400 million. This is evidence of creative management since they have so many areas where they can deploy cash rather than just letting it pile up on the balance sheet. The optionality is fantastic for this business.

Risks

Even a company as great as Tencent is not without risks. Mainly, its source of success could be a source of its downfall. With a company as diversified as it is, managing all of the moving parts could become difficult. Watching the revenue growth specifically will tell us if we need to worry as investors because it could be a sign that it is getting beat by more specialized providers.

The interesting thing with internet companies is with massive scale, diversification is simply an overflow of places to re-invest cash. In other words, with so many opportunities, foraying into other sub-sections of tech is only natural. Think Amazon.

I believe this is the main concern with Tencent right now. Can a company really do all that it is doing better than a company who is only focused on one thing? I would love to hear some more ideas of what readers think are the main risks for this company, but for now, let’s wrap it up with some valuation.

Conclusion

I won’t spend a great deal of time on valuation because it is:

a) not ridiculous and

b) hard to overpay when a business is this incredible.

According to Yahoo, the market cap is $475 billion. Considering almost a neutral net cash position, let’s just keep this as the enterprise value. The company does not provide specific guidance, so we will just have to make an educated guess. If the company can grow sales 43%, a reasonable number by the end of 2018, revenue would come in at $52 billion. Using a historical operating margin of 35%, EBIT would be around $18 billion.

Dividing the market cap by forward EBIT brings us to just over 26x 2018 EBIT, a reasonable valuation for such an incredibly entrenched company with its hands all over the growing Chinese internet scene. While certainly not “cheap” based on traditional valuation metrics, the premium isn’t all that much greater than Facebook’s trailing EV/EBIT of 23.

Tencent has one of the biggest moats I have ever seen. True to its mission of “enhancing the quality of life via Internet Services,” this company is making waves and will continue to do so. Keep this one in mind.

Titans of China

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Titans Of China Series – Volume 2: Alibaba

Jul. 3, 2018 2:15 PM ET

Summary

Alibaba has an incredible flywheel similar to Amazon.

However, the business models of these two companies are fundamentally different.

Alibaba is still a strong business with great financials that make this a great company for a long-term holding.

The second titan in our series is none other than the great Alibaba (NYSE:BABA). Jack Ma’s brainchild is probably one of the more well-known Chinese companies and just like Tencent (OTCPK:TCEHY), it has its fingers in many different pies.

Investment Thesis

Alibaba’s flywheel and willingness to ride inevitable technology trends will continue to propel them as a strong business. With the recent pullback, the valuation doesn’t seem too bad.

YCharts

The Flywheel

Just like Amazon (NASDAQ:AMZN), Alibaba has an incredible flywheel. A flywheel is basically a strong value proposition that reinforces itself with economies of scale and momentum.

Source: Amazon

For instance, in Amazon’s case, AWS was a result of the flywheel. All of a sudden, extra server space from the rapid expansion in its e-commerce operations, led to its rise in cloud computing. Essentially, the flywheel is the manifestation of future successes based on rapid experimentation and business growth. Then, the value proposition becomes stronger and stronger, just like a network effect.

Alibaba’s business functions very similarly. For example, its core commerce segment accounts for 83% of sales but the value proposition is so strong because it has built a great ecosystem of capabilities. Imagine you’re a consumer in China. You can peruse Taobao, Alibaba’s consumer-to-consumer marketplace for great deals on any items you need. But you can also sell goods here.

Or if you own a business, you can list items on Tmall to use Alibaba as a third-party provider. But as a small business, you can also integrate payments with Alipay, use cloud services with Alibaba Cloud, get loans from Ant Financial(which was spun off by the company, before its 2014 IPO, in 2011), and even expand your offerings internationally with Tmall Global.

The extensive capabilities strengthen the company’s value proposition, which, in turn, brings more customers to the platform. In fact, to the tune of 617 million monthly active mobile users for the retail segment alone, up 22% year over year.

The Business Model Breakdown

But just because the flywheel is similar between Amazon and Alibaba, doesn’t mean the business model is. If you only glance at the financials, you can infer that.

About half of Amazon’s retail business is through first-party selling. This means wholesalers sell to Amazon, which acts as the retailer on its own platform. The other half comes through third-party selling, which is Alibaba’s bread and butter. This means that Alibaba only acts as a vehicle by which buyers and sellers connect. Think of it as a toll booth that takes a cut of every transaction. This is partly why Amazon reports about a 4% operating margin (also because the company ceaselessly re-invests in its business) and Alibaba about a 30% EBIT margin.

What’s more is that those commissions Alibaba charges its sellers only make up about 32% of sales from core retail. The remaining 68% comes from marketing services. The company charges sellers for ad placements and priority viewership based on cost-per-clicks. It is just like Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Adwords. No wonder Alibaba’s margins are high; it basically sells ads to businesses to compete for viewership so they can sell more. As a comparison, Google’s gross margin tends to hover around the mid-60%’s. And sellers must comply. Reaching 617 million eyeballs monthly is a huge advantage.

So Much Room for Activities

Just like Tencent, Alibaba has a lot going on. Besides core retail and cloud computing, the company offers media streaming with Youku Tudou, a Slack-like application called DingTalk, a Google Maps function called AutoNavi, and a food delivery service named Ele.me among other innovations. These segments make up the remaining 10% of sales, leaving 7% for the rapidly growing cloud services.

Plus, Alibaba’s 33% stake in Ant Financial is a very valuable asset as rumors have it valued around $100 billion. This is because Alipay, which is under the Ant Financial umbrella, has been a top payment provider in China. And the innovation is not stopping.

The company has been championing its “Five New” visions made up of initiatives to ride the waves of New Retail, Manufacturing, Finance, Technology and Resources (or Energy). Alibaba has been particularly keen on New Retail, envisioning a future where the integration between online and offline is seamless. In the latest quarter, income from operations dipped to the lowest as a percentage of revenue in the last couple of years. Management addressed this in the earnings call, stating that:

“the development of New Retail business will have different financial and margin impacts to core commerce over the next several years, because parts of our New Retail revenues are accounted for on gross basis, where we operate, own, and sell inventory directly. By the way, please note that this is not same as traditional buy and sell First P[arty] business, because the reason we are doing this is to figure out the ways to improve the efficiency of the whole retail value chain is for the restructure and transition of this retail field. And later on, we’re going to use this methodology to enable user technology to enable the offline retailers to reform their business.”

I think this is a key quote to understand where the company is headed in the future. It seems as if it is playing a little bit of JD.com’s (NASDAQ:JD) game, foraying into the first-party space. However, at the same time, it seems like a test for better servicing customers down the road. Going full-fledged into owning inventory would be a fundamental change in the whole business so this will be an important piece of the narrative to watch.

Financials And Valuation

Alibaba saw its core business grow at a 62% clip last quarter to $8.2 billion. Cloud services grew 103% to $700 million, a very similar number to Nvidia’s (NASDAQ:NVDA) datacenter business. But that led to overall revenue increasing by 62% to almost $10 billion.

Source: Alibaba

Historically, operating margins have hovered around 30% but investments into logistics networks and New Retail may curtail that in the meanwhile, though Q4 is typically the biggest quarter in terms of spending.

However, the company does not expect growth rates to slow all that much. On the last call, revenue guidance for 2019 was over 50%, with multiple analysts remarking how impressed they were.

If Alibaba can beat guidance, $58 billion (52% growth) is a very plausible sales number for the end of 2019. Factoring in some investments, let’s say EBIT margins come out to 28% for the year. This leaves the company with $16 billion in EBIT. Right now, the market cap is $477 billion with an $8 billion net cash position.

So the forward valuation comes out to be about 29x forward EBIT, a very similar number to Tencent. Both companies have been able to maintain extreme profitability with huge revenue growth from big bases. It is interesting that the market is valuing them so similarly. In my opinion, both of these juggernauts are almost equally impressive, but more on that in the conclusion.

Risks

Alibaba, though a powerhouse, still has risks. Mainly, competition is stiff from JD.com. Not coincidentally, Tencent owns an 18% stake in JD and Walmart (NYSE:WMT) and Alphabet both have substantial investments in the company. Everyone is gunning for Alibaba.

As stated, Alibaba has a very asset-light business model whereas JD has a very capital-intensive one, as it owns more than 500 warehouses. Many people think that JD will, one day, have a large competitive advantage because of its iron-tight grip on its logistics infrastructure. If Alibaba were to disrupt itself and its business model to play JD’s game, profitability would suffer immensely. For instance, JD actually hauls in more revenue ($60 billion annually) but its market cap is only about $55 billion, or less than 1/8^th of Alibaba’s.