How Albertsons Paves A Path For Amazon To Buy Express Scripts

Albertsons and Rite Aid both fill prescriptions, so it makes sense the grocery store chain that also owns pharmacies would be interested in buying a drugstore operator.

But Albertsons is also an employer with 280,000 employees from supermarkets that use a Rite Aid-owned pharmacy benefit manager (PBM) for worker prescription drug benefits. Once Albertsons completes its purchase of the remaining 2,500 Rite Aids that Walgreens Boots Alliance isn’t buying, the grocer will also own EnvisionRx, a PBM that manages the supermarket chain’s employee drug coverage.

It could be a path for Amazon to follow if the online retailer wants to buy the PBM it uses to help manage its employee drug costs. The PBM Express Scripts has Amazon as a client.

It’s the kind of deal that has already been speculated for the online retailer Amazon, which last month announced it was creating a healthcare company with Warren Buffett’s Berkshire Hathaway and JPMorgan Chase & Co. The three said they are forming an “independent company” to improve healthcare and lower costs for their hundreds of thousands of U.S. employees.

Some analysts and media pundits have been speculating for months that Amazon will at least take a look at Express Scripts. A deeper Amazon relationship with Express Scripts could be a beachhead to expand into pharmacy and retail healthcare .

On the day Amazon announced it was forming a healthcare company with Berkshire and JPMorgan, the Express Scripts CEO said he wanted to hear more from Amazon. “We look forward to hearing more about this new initiative and how we can work together to improve health care for everyone,” Tim Wentworth, the CEO of Express Scripts said. Express Scripts reports its fourth quarter 2017 earnings this week and is expected to provide an update on its business strategy and outlook for 2018.

Amazon and its partners said the initial focus will be on “technology solutions” that will provide U.S. employees and their families with “simplified, high-quality and transparent healthcare at a reasonable cost.” The statement didn’t disclose many details about the venture, saying it was in the “early planning stages,” with executives acknowledging healthcare’s many complexities.

 Amazon, which bought its own grocery chain when it purchased Whole Foods, is also reportedly interested in getting into the medical supply business and CNBC reported last week the online retailer was getting into the business of selling over-the-counter health products.

Albertsons, best known for its grocery brands, is interested in buying the remaining Rite Aid pharmacies to get more foot traffic into its stores as well as grow the larger prescription business that will be created. The combination of Rite Aid and Albertsons will have 4,350 pharmacies across 38 states and Washington D.C.

But like Amazon, Albertsons is also looking to get a better deal on healthcare costs for its employees. And even though Albertsons knew the prescription business given the hundreds of pharmacies in its stores, it doesn’t own a PBM.

“This gives us great confidence in our ability to successfully bring our two companies together and realize the full potential of the combination for our customers, employees, partners and shareholders,” Albertsons CEO Robert Miller said of the grocery store chain’s merger with Rite Aid.

Source: Forbes

The Future Of The Supermarket: Fresh Is King

E-commerce is disrupting the arena of the traditional supermarket industry. Old moguls, like Walmart and Costco, have initiated their own online businesses to survive this seismic shift. Walmart’s net sales from e-commerce grew 60% and 50% in Q2 and Q3 of 2017 respectively, while total sales grew just 1.8% and 2.7% over the same periods. It seems that the traditional supermarket industry will migrate to the internet, leaving physical stores to decay in their tombs.

So, will online shopping completely replace traditional physical stores in the supermarket industry? The answer is a big no.

Online shopping cannot solve immediate needs. Even e-commerce giants are seeking physical stores to organically integrate the online shopping and offline experience. Amazon has been trying to make a dent in the $668.68 billion grocery industry. It began to dabble in the grocery business in 2007 as it started its own grocery delivery service Amazon Fresh. In December 2016, Amazon revealed the concept for its first physical grocery store, Amazon Go. The idea is to let consumers walk in, pick up items and then pay for them without ever standing in line at a cashier. To step further into physical retail, Amazon bought Whole Foods Market in a blockbuster deal worth $13.7 billion.

Unfortunately, the effort to integrate online shopping and offline grocery service does not always work smoothly. Amazon Go encountered technical difficulties that sensors in the store failed to track their customers, causing the company to postpone plans to expand Amazon Go nationwide. And after Amazon bought Whole Foods, the company discontinued Amazon Fresh grocery delivery service in parts of at least nine states.

Meanwhile, Instacart and Fresh Direct are among the other popular online-only grocery services that have been expanding across the country but they don’t always live up to customer’s expectations, either.

So, what is the problem? Delivering perishable food is hard for online-only grocers. Perishables are not like electronic items or clothes that can sit on shelves for a year. Fruits, dairy and vegetables rot within days or even hours. They must be delivered to customers before they spoil. Solving this problem requires a sophisticated supply chain.

Walmart does better in online grocery because its ubiquitous physical stores have built a vast online grocery pick-up network, which eliminated the delivery process to preserve the freshness of the perishables. Walmart’s experience of running physical stores for more than half a century has established a sophisticated supply chain replenishing the perishables at a reasonable rate. Technology companies like Google struggle in this battle, since they do not have a stable supply chain like Walmart. Google discontinued a part of its perishable food delivery nationwide. “We made the hard decision to focus on dry good groceries and having that be national,” Brian Elliott, the general manager of Google Express said. “For now, we’re not going to sweat the milk and eggs, and ice cream side of it.”

Google’s setback proves that being fresh is not only a marketing strategy but also a test of vertical integration of the supply chain. A vertically integrated supply chain can boost the velocity of distribution which provides the possibility to keep food fresh during the distribution process. Acquiring Whole Foods’ supply chain was the last step for Amazon to conquer the logistics space and complete a vertically integrated retail supply chain. With this, Amazon can perfect its last-mile delivery strategy and deliver high-turnover perishable goods. Also, by purchasing 440 refrigerated warehouses within 10 miles of 80% of the U.S. population, Amazon made a great effort to expand its distribution network. All of these greatly boosted its profit margin.

Among all ethnic groups, Asian Americans have shown a particular preference for fresh food. They buy 26% more fresh vegetables and 11% more fresh fruits than other groups and spend 147% more on fresh seafood. The Chinese/Asian supermarket chain, iFresh, has developed an integrated supply chain to serve Asian Americans: iFresh acquires up-stream suppliers, including farms and seed companies, down-stream retailers, such as its physical supermarkets and e-commerce platforms, as well as wholesaler and import/export companies that provide market intelligence. This highly integrated supply chain enables iFresh to deliver exclusive commodities, including Chinese seasonings, fruits and vegetables, that its customers cannot find in normal grocery stores.

iFresh also adopts differentiation strategies to create a unique shopping experience. Xiaoqing Liu, a well-known Chinese actress, has attended the opening ceremony of at least one of its new stores, and iFresh promotes the openings on social networks. This promotion primarily target Chinese Americans, as iFresh’s established supply chain and marketing strategy specifically focus on Asian Americans’ needs. Whether iFresh can expand its business to serve other ethnic groups in America, like Whole Foods, is still unknown.

Whole Foods label themselves as America’s healthiest grocery store — it doesn’t just provide fresh goods, but natural organic goods that are popular among all ethnic groups. It also leverages a first-class shopping environment and exquisite commodities to cater to the taste of the middle class. The company also improves its image by committing to sustainable agriculture. High-quality organic food, a state-of-art shopping environment and company culture all create a unique shopping experience and add to its edge.

In this battle of online and offline, being fresh is the silver lining that can help traditional grocers keep a hold of market share in the future. But it’s not only about freshness — it’s really about experience. After all, delivering freshness is also a kind of shopping experience.

Source: Forbes

Our Whole Foods sales are increasing despite Amazon price cuts

Despite Amazon‘s price cuts at Whole Foods, the CEO of a top food supplier told CNBC on Tuesday that his company has seen sales “increase dramatically.”

“Ultimately, sales drives a lot of leverage on margins, on delivery and costs,” said Hain Celestial CEO Irwin Simon, who says his company has more than 1,500 products authorized at natural and organic grocer Whole Foods.

Simon said Lake Success, New York-based Hain will continue to work on prices with Amazon, but added he thinks “it’s important to be able to put out there well-priced products.” “I’ve seen costs come down, and we will participate with [Whole Foods],” he said in an interview on “Squawk Alley.” “But the volume has increased dramatically at Whole Foods.”

Hain, an organic and natural products company, said earlier this month that net sales rose 5 percent in its fiscal second quarter to $775.2 million, from the same quarter a year earlier. It reported adjusted net income of $42.7 million, a 30 percent increase.

The earnings came months after the aggressive expansion by Jeff Bezos‘ Amazon into the grocery business by completing its $13.7 billion acquisition of Whole Foods. Shortly before completing the deal, the e-commerce giant announced it would lower prices at Whole Foods on a selection of staples across stores.

Around the time the deal was announced, Hain said it saw many positives to Amazon buying Whole Foods.

Additionally, Simon said Hain will focus on e-commerce throughout 2018 as he believes it will be a big part of the company’s growth. He also said Hain would put increased focus on where its products come from.

We’re focused on “fresh, fresh and fresh,” he said. “We’re focused on sugars, we’re focused on calories.”

Hain has more than 60 brands, which include Arrowhead Mills, Rudi’s Organic Bakery and Almond Dream. The company’s shares were more than 1 percent lower Tuesday, trading around $35 a share.

Source: CNBC

Walmart the world’s biggest retailer wants to bring blockchains to the food business

I’m at Walmart’s global food safety collaboration center, housed in a nondescript office tower downtown, on a rainy Beijing summer day. I meet with Frank Yiannas, VP of food safety at Walmart. He’s fresh off a flight from Bentonville, Arkansas—Walmart’s headquarters—and is in Beijing for a quarterly meeting of the board that oversees the center. He’s keen to underline China’s importance in the world’s future food supply landscape. “It’s such an important and expanding economy in the global 21st century food system,” he says. “The 21st-century food system—China will play a huge role in it.”

And Yiannas is right. Chinese take their food safety seriously. After dozens of scares involving “fake” food—from eggs to infant formula—Chinese consumers place a premium on food products that come from what are perceived to be trusted sources. That’s why there’s a roaring trade in baby milk powder, from Hong Kong and Australia, on the mainland. It’s so big that the Chinese government changed tax rules in 2016 to clamp down on the grey market for imported baby milk formula.

That’s partly why Yiannas chose to launch Walmart’s blockchain ambitions in Beijing, with a pilot project that tracked packages of pork—China’s most popular meat—from farm to supermarket shelf. The pilot was successful enough to trigger a second trial, this time with mangoes in central America, which was successful as well.

We’re talking in the food safety collaboration center. Instead of a lab filled with scientists testing meat or vegetables for toxins, it’s really just a series of meeting rooms, much like any co-working space across the Chinese capital. “We certainly could have built a lab,” Yiannas tells me, but Walmart was less interested in using the center to focus on the science of food safety, and more on the links in the chain that get food from place to place. “Some companies will do food-safety work in a silo,” he says. “We reach out to the suppliers, the consumer groups.”

The Beijing center, the first of its kind for Walmart, opened in 2016. The retail giant committed $25 million over five years to the facility after a number of food safety scandals—from mislabeling of organic pork to selling expired duck meat—plagued the country. Walmart’s goal is to convene the world’s food safety experts to figure out ways to track the provenance of a package of food—be it mangoes or pork ribs—with new techniques and systems.

 Walmart’s blockchain project could fundamentally alter the way information is secured, stored, and shared across the food and retail industry.

One of Walmart’s grandest projects is an attempt to graft a blockchain, that immutable cryptographic ledger first used by bitcoin, onto the world’s complex food supply chains. Walmart has roped in some of the industry’s biggest players, among them fruit producer Dole, consumer goods giant Unilever, and Swiss water and food conglomerate Nestle, to form a consortium of 10 food producers and retailers to make it a reality. They’re building the technology with IBM, which has been among the most active technology firms pushing blockchain solutions to corporate technology departments. If Walmart is successful, the project could fundamentally alter the way information is secured, stored, and shared across the food and retail industry, ushering in an era where an item of produce can be tracked in real-time from farm to table, by producers and consumers.

The Problem with Supply Chains

To hear logistics experts describe the links of warehouses, container ships, trucks, and cargo planes that deliver our food to us, it’s a wonder anything makes it onto our shelves at all. It’s a mess of phone calls, hand-written forms, and, yes, the much maligned fax machine. Retailers and food suppliers can spend millions of man-hours a year on food traceability, says Yiannas.

Food supply chains are complex affairs that have only become more intricate over the last decades. “The fundamental problem with supply chains is that information is captured in silos,” says Steve Rogers, an IBM supply chain expert. “The globalization of supply chains has just made that worse over the last 15 to 20 years.”

Collaboration—or the lack of it—is the reason why current food safety systems take so long to trace a product’s provenance.

Collaboration—or the lack of it—is the reason why current food safety systems take so long to trace a product’s provenance. Yiannas describes a landscape for food safety systems that’s fragmented, with each producer or retailer using its own systems to track products. The problem begins when an item leaves one producer’s system and is entered into another’s, with no traceability between the two systems. “It’s very linear data capture. It’s siloed in Walmart’s system, or another retailer’s system, and there’s no connection,” he says. “With blockchain, it’s different. It’s fundamentally about networks.”

Rogers describes the complexities of even a basic food supply chain: “Think of a farm that may be selling to three or four different wholesale buyers. They may then be distributing to multiple different packagers, who eventually package it for different brands. And then another set of logistics is going on, and eventually it gets to a store.”

In January 2016, a listeria contamination caused at least one death and dozens of hospitalizations in the US. This came 10 years after an e. coli outbreak from contaminated spinach, which infected 199 people. The first cases of the e. coli outbreak were reported in mid-August, but it was only in early October that the Centers for Disease Control issued a warning. Rogers says greater supply-chain transparency would have tightened the “containment ring” and minimized infections. “When you don’t have the information, your containment ring becomes extremely large and costly. With knowledge, you can draw a much tighter containment ring and hopefully you can isolate it quickly,” he says.

Rogers and Yiannas are betting on blockchains to do this. But it didn’t come easy for these veterans of the logistics and food businesses. “I was a naysayer, I was so skeptical,” Yiannas says of the time IBM first gave a presentation about the technology to him. “I became a believer when I started to understand how blockchain worked,” he says. “It solves not only digitizing food information but it addresses the social issue of how that information is shared.”

 “Blockchain tech is designed to solve the problem of coordinating members of a group who don’t necessarily trust each other.”

The “collaboration” bit of Walmart’s food safety center in Beijing also goes some way to explaining why a blockchain is a good fit for it. Blockchain tech is designed to solve the problem of coordinating members of a group who don’t necessarily trust each other. In the case of bitcoin, it allows anonymous strangers to send digital money to one another while eliminating the possibility of one party cheating another by spending funds that they don’t have, for example. That principle has been seized on by other industries, from finance to shipping, as a way to solve coordination and issues of trust globally.

There are trials from the shipping line Maersk and work by Chinese e-commerce giant The latter has a blockchain, live since May of 2017, tracking the delivery of frozen beef from the steppes of Inner Mongolia to supermarket shelves in China’s megacities of Beijing, Shanghai, and Guangzhou. Fellow e-commerce giant Alibaba has announced plans to do something similar, but with beef products from Australia.

“Companies have been digitizing information on the supply chain for two decades,” he says. “That’s not new. What we didn’t believe—but what we saw—is that the fundamentals of how blockchain works are different.” He talked about the glut of horse meat fraudulently mixed into processed meat products across Europe in recent years. “[Blockchain] is like shining a light on each point of the food system that could deter those types of incidents.”

What’s a Blockchain Anyway?

At this stage, some explanation of what exactly a blockchain is is in order. First of all, there is no single, monolithic blockchain. Different cryptocurrencies, such as bitcoin or ethereum, have separate blockchains. When people refer to “the blockchain” they may be referring to the oldest and most popular one, which is the bitcoin blockchain, or using it as a generic term for blockchains in general.

In the case of a cryptocurrency like bitcoin, it might be helpful to think of a blockchain as a byproduct of bitcoin transactions. How does this happen? Each bitcoin transaction is recorded in a ledger—its blockchain—that is shared among all the computers that make up the bitcoin network globally. Bitcoin’s ledger is made up of chunks of data—blocks—that when strung together form a history of every transaction ever made by anyone with bitcoin. This string of blocks is bitcoin’s blockchain. (Here’s our in-depth explainer on how transactions are added, or mined, in bitcoin.)

How do you create a blockchain without the speculation and mania linked to bitcoin?

Since bitcoin was created nine years ago by the still-anonymous Satoshi Nakamoto as a tool to side-step banks and state-issued money, it has increasingly been embraced by the very institutions it was designed to disrupt. From Wall Street to the world’s biggest corporations, executives tasked with bringing innovation to their companies began talking about “blockchain technology” as an idea distinct from the cryptocurrencies that introduced it.

The idea is to reverse engineer a blockchain and extract the best features while leaving the rest behind for the anarchists and libertarians of the bitcoin world.The challenge is this: How do you create a blockchain without the speculation and mania linked to bitcoin? Instead of a blockchain being merely a record of bitcoin’s transactions, executives wanted a blockchain that could deal with existing, real-world assets to suit their own needs. That might be streamlining supply chains, automating banking back-room operations, or tracking diamonds.

Marrying blockchains with supply chains

The reason corporations think a blockchain could solve their supply chain problems can be summed up in one word: trust. It’s what blockchains were designed for—getting a bunch of counter-parties to agree on a set of transactions. That’s why bitcoin users, for example, can stay semi-anonymous.

In the same way, corporate blockchains would allow a vast network—from farmers to trucking companies to warehouse staff—to trust that a product has passed through a link in the chain and been processed in a particular way. Blockchains used by corporations are closed and can avoid the energy-intensive expense involved with “mining,” or doing the computing necessary to solve the cryptographic puzzle associated with bitcoin.

Blockchains for corporations have another critical property: greater privacy. While it may sound counterintuitive, corporations are even more sensitive over transaction data than, say, a dark web user who’s buying illicit drugs with bitcoin. When corporations first began to explore blockchain technology, they were keen to build in a layer of privacy over transaction data. That’s what consortia like R3, or the open-source Hyperledger project, have developed in the blockchain solutions they market to companies.

What WalMart and IMB are doing

To understand what Walmart’s experiments with blockchain technology looked like, I went to IBM’s research lab in Zhongguancun, which has been called China’s Silicon Valley because of the sheer number of technology giants headquartered there. There, I met with the team of research scientists and executives who worked with Walmart to develop a blockchain solution based on the open-source Hyperledger codebase.

Jin Dong, the associate director at IBM Research who led the effort, walked me through the process of putting Walmart’s pork on a blockchain. Data about the pork product, from the farm inspection report to the livestock quarantine certificate, are digitized by an “industrial personal digital assistant,” which basically looks like a smartphone in a rugged case. It emits a laser to scan barcodes rapidly. These data are then uploaded in real-time to Walmart’s blockchain. The farm is operated by a company called Jin Luo, and this particular farm is located in Lingyi city in northeastern China.

“The nature of blockchain ensures the data put into a blockchain can hardly be changed, and can be stored forever.”

The other key link in this process are the drivers. They are charged with not only transporting the product, but bringing along the necessary documentation for each batch of products. With the blockchain pilot, they were asked to take photographs of the various certificates as they transported them from place to place, where they would be stamped. This verified that the products were moving along the supply chain. “If someone is looking for specific documents, it takes a lot of time to locate them,” Dong said. Digitized documents stored on a blockchain and linked to a particular batch of products removes that pain point, he said.

As the pork products wend their way to a Walmart distribution center, and ultimately, the shelves of a Walmart store, they have passed through dozens of hands. But the blockchain pilot allowed the progress of each batch of products leaving the farm to be tracked, in real-time, across the country. Once the products reach individual stores, they are repackaged and distributed across the shop floor. The pilot doesn’t track individual retail packages, IBM said, although the level of detail in the data is sufficient to track a particular retail package back to the farm. Changrui Ren, an IBM Research executive who worked on the project said, “The nature of blockchain ensures the data put into a blockchain can hardly be changed, and can be stored forever,” he said.

The complexities of sliced mangos

After the Chinese pork pilot, Walmart ran a larger scale test tracking mangoes from central America. “We picked mangoes because it was more complex,” Yiannas says. “It was sliced mangoes.” The fruit is grown by small farmers, transported to a “packing house” where they are washed, then moved across the US border. They are then stored in refrigerated warehouses, and eventually end up at a Walmart supplier where they are sliced and packaged. “You can see how many layers it takes to get those mangoes from farm to table,” he says.

 Current rules for food traceability require a retailer to be able to see one step forward and one step back in the chain.

Current rules for food traceability require a retailer to be able to see one step forward and one step back in the chain. That means Walmart would only be required to know which importer handled a particular package of mangoes, but wouldn’t necessarily know which packing house it came from, or which farm. “It’s almost impossible to have a clear view of where this food came from,” Yiannas says.

Yiannas decided to put his team, and the blockchain they had built, to the test. He bought a packet of sliced mangoes and brought it to the office. “I told them to trace it back to the farm,” he says. After numerous phone calls, faxes, and emails, the results were in—six days, 18 hours, and 26 minutes later. “Those records had to be pursued,” he says. He then did a live demonstration of the blockchain system in front of the media, tracing the same packet of sliced mangoes. “We put in the code, and we traced it back to the farm in 2.2 seconds,” he says. “So we’ve gone from seven days to 2.2 seconds. This isn’t a lab. This isn’t theory. This is the real world.”

Every second matters, Yiannis says, because in a real food contamination situation, it could mean the difference between many more sick consumers, and farmers being forced to stop supplying their produce for fear they were the source of the contamination. “Imagine if there was a food scare and you didn’t know where the contaminated mangoes came from,” he says. “Seven days is a long time.”

 “A blockchain solution is the foundation to creating a smarter food system for the future.”

Even the best blockchain architecture would be useless if producers and retailers couldn’t agree on how to use it. That’s why Yiannas pushed to create a consortium with other food companies—something that’s easier to do when you’re the world’s largest retailer by sales. “The blockchain solution we’re working on is the foundation to creating a smarter food system for the future,” he says. He envisions packing pallets with thermometers that transmit their cargo’s temperature instantly, and all that data stored on a blockchain can be accessed by customs officials, regulators, and consumers.

But in order for that data to be make any sense when it’s shared across silos, it has to be captured and formatted in standard ways. “Any companies working on [blockchain tech for food chains] need to base it on established standards,” he says. “Some new standards will need to be created, but I don’t think it will be that hard. The food industry has been working on this.”

Some skepticism

Some industry observers think blockchain’s potential in logistics has been overhyped. Gartner’s Ray Valdes, who covers blockchain projects for the research firm, says that many supply chain projects could just as easily be executed on a traditional database. “Ninety percent of enterprise blockchain projects today don’t need a blockchain, and would be better off without one because they are not aligned with what blockchain can actually do,” he says. Valdes says he advises most clients against using a blockchain in their technology system. “If I can save them $1 million on a pointless blockchain project, that’s our value,” he says.

When it comes to supply chains, Valdes believes that blockchains could play an important coordinating role. “If you have a fragmented business ecosystem, with many parties who don’t know each other but need to do business, then they could collaborate through a blockchain,” he says. But there’s a catch. “It’s a ‘boil the ocean’ problem,” he says, meaning that it’ll take fundamental shifts in an industry for adoption to take place. Optimistically, he says, it would take a decade for the industry to rearrange itself so that everyone was logging interactions on a blockchain.

Valdes argues that a company as dominant as Walmart doesn’t need its suppliers on a blockchain. It can simply ask its vendors to use whatever system it chooses. “They have been very successful because over the years they have built a robust system of record for their supply chain,” he says. “If you were a supplier to them, you would happily accept their centralized version of the truth.”

But in Yiannas’ mind, blockchains solve the very thing that prevent databases from being built and shared between companies: trust. He told me about his quest for the perfect food traceability system. “I’ve looked at them all,” he says. “I’ve been in pursuit of the holy grail.”

Blockchains, because they are designed for collaboration, could change all that, and not just for the Walmarts, Unilevers, and IBMs of the world. “It’s a new way of democratizing how data is captured and shared,” Yiannas says. “It’s a game-changer in that it’s adding value to all the participants.” Yiannas puts blockchain tech on the same scale as cellphones when it comes to digital disruption. “Imagine a digitally transparent system connecting farmers and buyers,” he says. “One of the best things that has happened to farmers in small economies is just giving them a cellphone so they can connect with buyers.”

The unlikely factor aligning a Walmart food executive and a mango farmer in central America, then, may turn out to be an accounting device that was first given expression in a stateless cryptocurrency, but which may turn out to be critical in resolving one of the food industry’s most vexing problems.

Source: Quartz

Walmart Hits With Grocery, Misses Big Online

After three consecutive quarters of eCommerce growth that was north of 50 percent, Walmart’s digital sales grew less than half of that last quarter – and investors were less than thrilled.

That was on top of news that Walmart’s increased profit-margin pressure was pushing an annual revenue estimate for 2018 that missed investor expectations.

Despite the concern – and a corresponding 9 percent drop in Walmart’s stock price that shaved some $29 billion from its market cap – CEO Doug McMillon told analysts he remains confident that 2018 digital sales performance will be in parity to its 2017 performance.

“Looking ahead, we expect eCommerce growth to increase from the fourth-quarter level as we enter the new year,” McMillon noted.

According to Walmart’s official figures, eCommerce averaged 44 percent for 2017. That growth was buoyed by Walmart’s aggressive pursuit of digital sales as it has sought to compete more directly and successfully with Amazon’s stronghold on eCommerce in the U.S.

Walmart acquired for roughly $3 billion in September 2016, followed by a series of eCommerce investments throughout 2017, including Bonobos, ModCloth and Moosejaw.  Walmart also expanded its buy online/pick up in store capacity, grew its digital payments platform (Walmart Pay) and generally re-centered its focus on integrating its massive physical scale with its upgraded eCommerce efforts.

Those efforts had shown signs of strength and success, marked by Walmart’s explosive digital growth throughout most of 2017 – which is why, according to Simeon Gutman, retail analyst for Morgan Stanley, the market was so singularly disappointed in the latest round of results.

“This quarter did not live up to those high expectations,” he noted, despite strong sales that came in above analyst expectations.

By the Numbers

Walmart reported earnings of $1.33 a share in Q4, short of analysts’ expectations of $1.37. That mild miss, Walmart noted, came as the firm pulled forward some investments for tax purposes.

Same-store sales, physical retail’s most-watched metric, grew 2.6 percent during the quarter, beating out forecasts of a 2 percent growth. Food, apparel and toys made a particularly strong showing in Q4.

eCommerce sales were also up 23 percent during the quarter, though down quite significantly from prior quarters. McMillon assured investors that 2018 should see an average eCommerce sales growth rate of 40 percent.

That growth prediction, however, came in the context of Walmart cutting its net sales growth forecast by as much as half, to a range of 1.5 percent to 2 percent. Those dips, according to CFO Brett Biggs, are owed to the decision to stop tobacco sales in some Sam’s Club warehouse locations and to eliminate a large part of its Brazilian eCommerce business.

The company also closed 63 Sam’s Club units last month.

Walmart said Tuesday that earnings per share would come in between $4.75 and $5.00 for the current fiscal year, below investors’ expectations, as there had been some thought that profits would be lifted a bit by the tax code changes.

As for those tax changes, Walmart is logging a provisional benefit of $207 million for the fourth quarter and full year. It sees an effective tax rate of between 24 and 26 percent, which is “a little higher than some expected,” Biggs noted.

The company said it expects a cash benefit of about $2 billion for the year as a result of the tax overhaul.

Beyond the Numbers

Though Walmart is forecasting strong eCommerce growth, it did acknowledge that Q4’s digital performance was not up to snuff.

“We were a bit lower than plan” in eCommerce, Biggs noted in a post-earnings interview with Bloomberg. “We had a few operational issues from an inventory replenishment perspective.”

Although Biggs did not elaborate, McMillon noted in his conversation with analysts that some of the issue stemmed from holiday goods like TVs and toys flooding Walmart’s eCommerce warehouses and squeezing out room for everyday items. “Our in-stock for basic items suffered as a result,” McMillon noted.

This issue, among others, is on Walmart’s priority list for 2018. McMillon used yesterday’s post-earnings rap session to outline Walmart’s evolving strategy when it comes to pursuing eCommerce, with a greater focus on drawing consumers to its core brand while slowing its marketing for Jet. Historically, Jet caters to higher-income urban shoppers, and Walmart is predicting that Jet sales may take a hit.

“The cost to acquire a new customer on a nationwide basis is cheaper with the Walmart brand, so we’ve been investing more in on a national basis and reducing marketing investment in Jet, except in certain urban markets,” McMillon noted, while affirming that Walmart intends to build out from Jet’s strength with “higher-income, urban, millennial customers.”

Going forward, said McMillon, Walmart will continue to evaluate themselves on the total U.S. eCommerce growth number.

McMillon also noted that the switch to more online sales is taking something of a toll on profit margins, as digital sales are generally less profitable than in stores.

But he also called out some of Walmart’s digital successes, and plans to build on them – such as its online grocery platform, which is counted as online sales.

McMillon noted that the development of that segment is in line with what the brand is hoping to develop across its multi-channel retail platform – and that 2018 will see Walmart doubling down on it in the U.S. and around the world.

“We’ll lean in this year by nearly doubling the number of online grocery locations in the U.S.,” McMillon predicted.

In response to an analyst question, McMillon also noted that Walmart will continue to explore grocery delivery as a possible expansion – but not with quite the same full-court press that order online/pick-up curbside is receiving.

“As it relates to grocery delivery, we’ve had this small pilot going on with our own associates, and we’ll continue to play around with that and learn what works there. But the expansion will happen through a variety of platforms. Depending on the spot in the country, we’ll use different providers to get the product to the customer,” he noted.

Walmart’s stock fell nonetheless – the 9 percent plunge represented the retailer’s worst day on Wall Street in about two years. But investors, though concerned – particularly as the Amazon challenge is getting more pointed – are still, provisionally at least, on board with Walmart’s efforts, provided they bear better fruit going forward in 2018.


Grocery chain Albertsons to acquire Rite Aid

This deal follows Rite Aid’s failed attempt in 2015 to sell to its 4,600 stores to Walgreens. That deal was whittled down by regulators to a purchase of 1,932 stores for $4.37 billion.

Rite Aid has a market value of $2.31 billion. The combined company is expected to have roughly $14 billion in net debt, according to credit ratings firm Moody’s. That figure could vary depending on how shareholders choose to be compensated for the deal.

As part of the deal, Rite Aid shareholders will have the right to exchange 10 shares of Rite Aid common stock for one share of Albertsons common stock plus roughly $1.83 in cash or 1.079 shares of Albertsons stock. Depending on the shareholders’ elections, Rite Aid will own a 28 percent to 29.6 percent stake in the combined company and current Albertsons shareholders will own 70.4 percent to 72 percent, on a fully diluted basis.

The new company’s revenues would be about $83 billion.

The two will have about 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and the District of Columbia. Most Albertsons’ pharmacies will be rebranded as Rite Aid, and the company will continue to operate Rite Aid’s stand-alone stores.

Upon deal approval, Rite Aid Chairman and CEO John Standley will become CEO of the combined company, and Albertsons chairman and CEO Bob Miller will be chairman of the new company.

Shares of Rite Aid were up 1.2 percent in late morning trading after skyrocketing as much as 30 percent before the opening bell.

The deal with Albertsons underlines the change in course that retailers are taking, no longer looking to expand only by real estate footprint, but also by capability. Increasingly, retailers are looking to pharmacies for this expansion, which can take advantage of the frequency with which people buy prescription drugs. There is also the opportunity to use store footprints as a base for drug delivery and pick up.

CVS Health late last year announced its intent to acquire Aetna for roughly $69 billion. Walgreens is now said to be in early-stage talks to acquire drug wholesale company AmerisourceBergen, The Wall Street Journal has reported.

These moves come as the health-care sector itself is under pressure. Amazon recently announced plans to team with Berkshire Hathawayand J.P. Morgan to craft a start-up to lower employee health costs.

New Strategy

For Albertsons, the deal presents an opportunity for its private equity owner, Cerberus Capital Management, to bring the supermarket chain onto the public market a dozen years after its formation.

Cerberus and a consortium of investors put together Albertsons in 2006. It then later merged with the grocer Safeway in 2015.

Cerberus tried to take Albertsons public soon after its Safeway deal, filing for an IPO that year. As it touted its roughly $24 billion valuation, it pointed investors to Kroger’s then strong stock performance and the opportunity it had to further buy up regional grocers.

It pulled its IPO plans at the last minute though. The week Albertsons was supposed to price its IPO, Walmart lowered its earnings forecast, dragging its stock valuation and those of its peers lower. Companies going public look to competitors as reference points for their own valuations.

Albertsons’ IPO remained shelved for months, waiting for Kroger’s stock to rebound. It also toyed with the idea of combining with Sprouts Farmers Market, sources have told CNBC.

Amazon’s acquisition of Whole Foods last year provided more uncertainty regarding Albertsons’ IPO plans, as it sent grocery stocks swooning and threatened to transform the industry.

It also made the grocer and its owner rethink its strategy of growing by focusing largely on acquiring regional grocery chains.

In the months since Amazon announced its acquisition of Whole Foods, Albertsons has worked to reposition itself as a digitally focused, modern grocer. It acquired meal kit company Plated in September and has been expanding its partnership with delivery service Instacart.

Source: CNBC

H-E-B the new Amazon? Grocery giant acquires food-delivery company Favor with eye on digital sales

Following in the footsteps of Amazon’s Whole Foods purchase, the Texas-based grocery giant H-E-B purchased a home-delivery service company on Thursday.

H-E-B acquired Austin-based Favor Delivery, which distributes restaurant meals and groceries via a mobile app.

H-E-B did not release the details of the transaction, but said the effort is designed to “accelerates (the company’s) path to become a digital retail industry leader in Texas,” as well as give customers choice in shopping and paying and receiving goods, particularly online. 

“I am thrilled to have H-E-B join forces with another well-respected and innovative Texas company,” said Martin Otto, H-E-B’s chief operating officer. “…Over the past two years, we have established a strong working relationship with Favor that has proven to be immensely successful for both companies. We see a unique opportunity with this partnership to support and accelerate each other’s growth through the sharing of experience, insight and resources.”

Favor will continue to independently operate their business as a separate brand. H-E-B will acquire all of Favor’s employees and its 50,000 runners, who operate as contract delivery drivers.

“It is our intent to continue to grow Favor just as it is our intent to grow H-E-B,” Otto said. “We’re very excited about this because of the opportunities it will afford both companies to better serve our customers.”

A joint news release issued by H-E-B and Favor says “this combination will provide Texans with an innovative, convenient and world-class home delivery experience.”

H-E-B operates 400 stores in Texas and Mexico.

Source: Click 2 Houston

CommonSense Robotics raises $20M for robotics tech for online grocery fulfillment

CommonSense Robotics, an Israel-based startup developing AI and robotics tech to help online grocery retailers speed up fulfilment and delivery, has raised $20 million in Series A funding.

The round was led by Playground Global, with participation from previous investors Aleph VC and Eric Schmidt’s Innovation Endeavors. It brings the company’s total funding to $26 million.

‘The funds will be used to scale up CommonSense Robotics’ facility deployment rate, develop their next generation of robotics and AI, and expand global operations and sales,” says the startup.

Using what it describes as advanced robotics and AI, CommonSense Robotics claims to enable retailers — even relatively small ones — to offer one hour, on-demand grocery deliveries to consumers “at a profitable margin”. It does this by employing robots to power bespoke warehouses or micro-fulfilment centers that are small enough to be placed in urban areas rather than miles away on the outskirts of town.

The robots are designed to store products and bring the right ones to humans who then pack a customer’s order. More robots are then used to get the packaged order out to dispatch. This robot/AI and human combo promises to significantly reduce the cost of on-demand groceries, thus broadening the range of retailers that can compete with Amazon

“Our AI software breaks the order down into robot tasks, and finds the right robots to complete those tasks,” Elram Goren, CEO and co-founder of CommonSense Robotics, tells me.

“We have robots that are capable of moving boxes (totes) around extremely efficiently and at high speeds. Our various types of robots will bring the right totes of products to a stationary human ‘picker’ who in turn packs the order, which is then sent by robots towards the delivery interface where orders are packed into a van or scooter for dispatch”.

In addition, Goren says all of this is designed to happen within a space of about 10,000 square feet made up of a 3D “cube” of racks ie utilising vertical as well as horizontal space.

Explains the CommonSense Robotics CEO: “Our robotics and AI are unique and proprietary with the entire system designed to maximise space efficiencies (how small we can have the warehouse), labor efficiencies (how little we can have human labor in the process), how fast we can deal with an average grocery order (usually less than 3 minutes, where a completely human process takes about 10x that), and how close we can have the centers to the customers”.

Meanwhile, The Tel Aviv company is currently deploying the first generation of its robots in its first operational facility, and has plans to open more facilities in the U.S., U.K. and Israel in 2018.

Source: TechCrunch

Why your grocery store wants to be like a startup

Grocery shopping has not changed much over the past 100 years.

Since Piggly Wiggly introduced the concept of picking out your own groceries in the 1930s, few technological advancements have stood out. The first shopping cart came along in 1937, and self-checkout was introduced more than 50 years later, in 1992.

But Amazon’s recent acquisition of Whole Foods Market was an abrupt wake-up call, setting off a scramble for supermarkets to adopt new technology to compete for customers who’ve become accustomed to getting exactly what they want, delivered quickly to their doorsteps.

The desire for change in the grocery shopping experience was made apparent last month, when the public got its first glimpse of the Amazon Go store in Seattle. Consider the irony: Designed to eliminate the check-out line, the store has had a line outside its entrance since it opened. And just last week, Amazon announced that it would begin offering groceries from Whole Foods through its two-hour Prime Now delivery service. 

“There is a sense of urgency,” said Laurie Rains, the Boston-based vice president of US retail commercial strategy for the Nielsen data analytics firm. “The consumer is changing, and nobody has really figured out the total picture.”

In 2016, about 23 percent of consumers made food and beverage purchases online, according to research from Nielsen and the Food Marketing Institute, but that’s poised to rise to 70 percent in as little as five years, Rains said. Online food and beverage purchases in the United States could reach $100 billion by 2022, according to a report Rains coauthored, yet most traditional grocery stores don’t have the talent, experience, or technology to truly compete both online and in stores.

Brick-and-mortar retailers “have serious work ahead of them if they are to hold their share of the market,” the report read. “[There] is no room for complacency, or for the business-as-usual mindset.”

In short, the grocery store has to evolve.

According to a soon-to-be published survey conducted by the Phononic, global provider of refrigeration equipment to grocery stores, 90 percent of people surveyed said they wanted to shop in a grocery store that understands how to make buying groceries easier and more efficient. And half of the survey respondents said that grocery stores haven’t figured out how to use technology like other retailers have.

For the past few decades, grocers have largely focused on updating the selections on their shelves: offering more organic produce or expanding their international food options, for example. But on the technology side, supermarkets have fallen victim to an increasingly wide “innovation gap,” said Sterling Hawkins, who oversees operations and venture relations at the Center for Advancing Retail & Technology, a consultants group that connects retail clients to companies that offer innovative solutions to longstanding problems in the industry.

Hawkins’s phone started ringing off the hook, however, soon after word spread about the Whole Foods acquisition in June. “It was like the Amazon thing lit a fire,” he said. “All of a sudden, the decisions and strategies and technologies are starting to move.”

In the ensuing months, many grocers took steps to introduce more technology in their aisles.

The stock price for Kroger Co., the country’s largest supermarket chain, took a dive after the Whole Foods acquisition was announced, and the grocer responded by announcing the national expansion of its “Scan, Bag, Go” program, which gives customers hand-held scanners to tally their items as they shop, then check out without interacting with a cashier.

Kroger also plans to install more digital shelves, which display video ads and offer coupons to customers. The company says that, eventually, the displays will synch with shoppers’ phones, highlighting items on a grocery list, for example, or offering discounts to loyal shoppers.

The New York Post and Reuters also reported last month that Kroger had held talks with Alibaba about partnering with Chinese e-commerce giant to “speed up the integration of online and offline [in store] sales.”

“While research has shown that the majority of shoppers still prefer buying groceries in person instead of online, those same shoppers are increasingly expecting an experience that blends online with offline,” said Karen Garrette, global retail industry director at Microsoft, who is working on Kroger’s in-store technology.

“They want to be able to do things like create their grocery lists online in a grocer’s app before visiting the store, or they rely on technology to remove friction in their shopping experience, such as waiting in a checkout line. With technology, the industry is finding it can deliver on these expectations and transform not only the in-store shopping experience but also the tools it gives to employees and the way it manages inventory — all to better serve customers.”

Other grocers have turned to acquisitions as a way to access technological savvy.

Walmart acquired an Amazon competitor,, in 2016 to get a stronger toehold in e-commerce and has been intent on finding ways to sync its online and in-store sales. It recently acquired the delivery service Parcel for day-of purchases made online and is seeking a patent for an app that can help shoppers see images of fresh produce before it is purchased for delivery.

Target recently acquired the same-day delivery service Shipt, the Alberston’s chain recently bought the meal-kit service Plated, and Kroger is rumored to be in talks about acquiring, an online competitor to Costco.

And some have turned to partnerships.

The bfresh supermarkets in Allston and Somerville had experimented with an app called Selfycart that allowed shoppers to scan items then have a store employee scan a code on their phone on the way out.

Stop & Shop has partnered with a company called HowGood to allow shoppers to scan items to learn more about the ethical standards of each product.

And Roche Bros. and Market Basket now partner with a local startup called The Dinner Daily, a service that uses the sales offered in weekly supermarket circulars to create inexpensive meal plans for shoppers.

The challenge for grocers is finding ways to both speed up and slow down the shopping, said Leon Nicholas, an analyst at Kantar Retail. Some are zeroing in on the fact that shoppers are buying more fresh food than ever and are choosing to focus on finding ways to get shoppers in and out of stores faster to get that fresh food on a regular basis. The hope is that customers making multiple trips each week will eventually spend more.

At the same time, some stores are looking for ways to get shoppers to linger, in hopes they, too, will spend more money, Nicholas said. He pointed to the rise of in-store cooking demonstrations and full-service “grocerants,” such as the Burger Bar at Wegmans in Medford and the Borgatti Bar that will soon open in the Whole Foods in Shrewsbury.

Now, even the most established grocers must begin to think like startups.

“It’s important to test and learn and fail quickly and move on,” Rains said. “Everybody is really experimenting and figuring out what is the best way. There is no one model, but it’s very clear that this is what the customers are looking for.”

Source: Boston Globe

Grocery startup Instacart has raised nearly a billion in funding

On demand grocery-delivery startup Instacart has raised a new $200 million round of funding. In total, the company has raised $900 million. The money will no doubt be used to fuel its rivalry against Amazon, which is expanding its online grocery delivery service Fresh and building out new programs through its retailer Whole Foods.

Instacart expanded its network of grocers quite a bit in 2017, signing deals with Albertsons, Kroger, Publix, and owner of Giant and Stop & Shop, Ahold Delhaize. In total, the company says it has 200 grocery partners in the U.S. and Canada. The push came in the wake of Amazon’s acquisition of Whole Foods, one of Instacart’s partners. The purchase of the organic grocer had analysts questioning the viability of Instacart in a world where Amazon delivers food. At the time, Instacart maintained that its delivery structure offered traditional retail grocery shops a way of keeping a competitive edge as Amazon grows bigger. Now it wants to grow its services for grocers even more.

The new deal values the company at approximately $4.2 billion.

Source: Fast Company