February 3, 2020: The fall of Lucky’s Market, Coke keeps its plastic bottle, will Walmart’s $1 wage increase boost employee morale?

No time for news? We’ve got you covered. Welcome to the Retail Rundown, your go-to weekly podcast where RETHINK Retail teams up with industry experts to deliver the top trending news stories in retail.

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Hosted by Julia Raymond

Researched, written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Hi everyone, today we’re joined by Laura Heller and Ricardo Belmar. Laura is an Industry Insider and columnist at Forbes. She is also a regular speaker and panel moderator at industry events and conferences like Shoptalk, CES, CommerceNext, and she’s also a former editor of Retail Dive. Ricardo is the Senior Director of Global Enterprise Marketing at Infovista and a retail influencer with 20 years of industry experience where he’s focused on digital transformation. Ricardo also serves on the Rethink Retail Advisory Council. Thank you Ricardo and Laura for joining today.

Ricardo Belmar:
Thanks for having me.

Laura Heller:
Thanks for having me.

Julia Raymond:
Great to have you. The first topic of discussion we’re getting into grocery. Lucky’s just announced its plans to close 32 of its 39 stores. Huge decision, it came in the wake of the Kroger company’s discussion in December to divest in the grocery chain. The Colorado based supermarket first opened doors in 2003, it markets itself as an organic grocery store for the 99%. Their second location opened way later in 2013 and in 2016, Kroger invested in the brand to bring it store count to nearly 40 locations. This is a big change especially because they just cut ribbons at so many stores. Ricardo, what do you think went wrong and I know we don’t necessarily have insight to their financial details, but what’s the macro level issue here?

Ricardo Belmar:
You know what, on the surface this is actually I think a tough one to call, but when you look at what the makeup of their locations, I think that the 32 stores that are closing are spread across 10 States. I think I read somewhere the remaining seven that they had, actually been bought by their chef founders. Seven of them it seems will live on, but even those seven I think are being spread across five States. The pattern I see with them that I think is interesting is, they’ve taken their concept and really spread themselves wide geographically.

Ricardo Belmar:
Usually we tend to expect a lot of these chains to expand by, maybe not too close together, but still within a particular region so that as they expand their distribution and logistics channels, it’s more of an organic growth and doesn’t put a lot of strain on them to do that. Now you figure their format, right? It’s very much focused on natural and organic. They haven’t had a very unique shopping experience, this is a place where you could sip a craft beer while you’re shopping or get a glass of wine while you’re walking around the shop, but it very much felt like a farmer’s market environment. They have a pretty loyal following from… I’ve noticed on Twitter, especially a lot people posting their disappointment that their local Lucky’s is closing.

Ricardo Belmar:
The format was certainly unique and interesting, but you have to wonder if we knew what their financials were like, right? You would want to know where they stretched a little too thin on the logistics side and their supply chain. Obviously, they must try to source a lot of local produce ingredients. That’s always a challenge in and of itself to do. But if they needed to move things around, they had stores that spread from Michigan down to Florida. My surface glance at it is that there’s probably something about spreading too geographically wide. I don’t know if it’s so much the store count growth that may have been a challenge for them, as much as it is how widely they distributed them. Now, I did see a note in one article, I can’t remember which publication that they had reported that if they were to keep those stores open into their 2020 budget year, they were on track to lose $30 million, yeah, from that. Clearly, the costs were too high to sustain without Kroger’s backing and I think this is the result that we’re seeing because of that.

Laura Heller:
It’s also true that their year end comp store sales were down over 10% I think really close to 11%. I’m just not sure that this is the right format and the right model for the locations they had. If you want to be a natural food store for the 99%, I don’t know how many of them live in Naples or Sarasota or Neptune beach, Florida. These are pretty upper income demographics that they’d have a few more options available to them. ALDI has really been rolling over and owning that other part of it. Their expansion of natural foods and free from additives is pretty comprehensive.

Laura Heller:
They really are the natural food store for the 99% and in a very affordable way and their locations match that. I’m not quite sure that Lucky really had the business model that spelled success, at least in this area. The consumer trends have really caught up to it and run right over it, we have ALDI taking over for that category. Kroger itself has managed to onboard a lot of natural food brands, develop some themselves and carve out its own place there as the nation’s largest grocery store or supermarket chain I should say after Walmart. Where is the room for a store like Lucky’s? I’m not sure.

Ricardo Belmar:
It’s a great point too. If you think about it, even as you mentioned Kroger, but even Walmart for that matter, right? Every major grocery brand is really moving into this natural organic area because that’s the trend or that’s the consumer trend right now and it is a pretty cut throat space at the end of the day. The grocery is a tough segment, the margins aren’t big, it is tough competitively. You have the, call it the original organic store with Whole Foods now by Amazon trying to create some noise. You’ve got even Publix getting into this space right in some of the areas where Lucky’s was located, it’s a lot of competition.

Laura Heller:
It is.

Ricardo Belmar:
I think there’s definitely something to that, right, but they’re really struggling with that.

Laura Heller:
Sure. Even Whole Foods is struggling with that.

Ricardo Belmar:
Yeah, that’s true.

Laura Heller:
I think they created the concept and everybody else caught up to them and by the way so do the consumer, right? It wasn’t just a small upscale niche consumer that was shopping the way the Whole Foods Shopper was sort of considered to be at the beginning, right? Now everybody shops this way or many people shop this way. It’s not a niche, it’s just another element of business as usual in grocery and Ricardo, you’re right. I mean, it is a cutthroat channel of retail.

Ricardo Belmar:
I know, absolutely.

Laura Heller:
Very low margin, highly supported by vendors in terms of co-op advertising dollars and shelf placements and end-cap rentals. A small player just can’t really leverage that scale that it needs to, I don’t think.

Ricardo Belmar:
Yeah, that’s true. I mean, even just thinking of other small players, that there was another announcement in New York that they also announced that they were definitely smaller and I think it was seven or eight locations. They announced they’re closing as well, they’re not the only ones, right and the small size nature that are struggling to stay alive in this cutthroat competition.

Laura Heller:
Yeah. That was Fairway Foods and yes-

Ricardo Belmar:
Oh, yes, that’s the one.

Laura Heller:
Being more into bitterly by its shoppers and sell the Lucky Foods. I mean, I have friends in Sarasota that had been posting photos of the shelves as they’re empty and got some great deals on wine. But people are very attached emotionally to the grocery stores regardless of the store, right? It’s a very personal experience in someplace we go more than once a week. We, sort of, subconsciously have to trust grocers more than anybody else in our world really outside of our family to provide us with safe food, to feed our family in a way that we can afford. Yes, people will miss it, for sure and it’s a shame that the business model wasn’t sustainable.

Julia Raymond:
It’s a shame because I do love my local Lucky’s and I will be one of those people who’s very sad to see it go. And I think there’s something that other grocers can take away from what Lucky’s built. It started out as a mom and pop operation and expanded quickly, attracted loyal customers. Having the ability to go, stroll and have a very affordable glass of wine or beer while you’re shopping and also, they occasionally have live music and other events that would take place at the store. I think these are things we’ll see other competitors start doing. I will say, I think it sounded like both of you agreed that there’s just cutthroat competition in the grocery space and that was a major challenge. Then some of their location decisions might have been questionable, not only because of the competitors located right next to them, but also how spread out geographically the expansion was. Okay. Before we move on to the next one, I just want to say I have not stepped foot in a grocery store for two months because I am addicted now to Instacart. It’s just that I read somewhere that by 2022 at least in the U. S, the E-grocery Market will be at over 300 billion. I do think there’s competition from that end as well.

Ricardo Belmar:
Yeah, absolutely.

Ricardo Belmar:
I just realized that that’s one of, probably the more exciting things to happen in my area in grocery except we’ve got some places now starting to do Instacart. A lot of people that know me have known I’ve complained for a while that I happened to be in an area that seems to sit just outside. I’d have everyone’s grocery delivery-

Julia Raymond:
Oh, no.

Ricardo Belmar:
… even Walmart, they were done. Why not? It’s interesting because I’m in a neighborhood that has close to 5000 homes and the entire area is like, well, probably a quarter of a mile just outside of Walmart’s grocery delivery area. Even for them we’re outside the range, but I know a lot of people in my neighborhood and myself included, are starting to take advantage of the pickup options. I book with Walmart, with Wegmans, it does it. All these that just open your eyes that everyone’s been excited about. We have plenty of grocery store options, not a lot of delivery but I know there’s a lot of penalty in our neighborhood for that too.

Julia Raymond:
Well, for your sake, I hope they expand soon, Ricardo.

Ricardo Belmar:
Yeah, I hope so too.

Julia Raymond:
Because you deserve the joy of grocery delivery.

Ricardo Belmar:
Absolutely.

Julia Raymond:
The next one we’re going to talk about, this is one of the world’s most well-known brands, Coca-Cola. Their head of sustainability, Bea Perez told BBC news recently that its customers prefer the lightweight and re-sealable plastic bottle and doing away with it would be bad for business. To offset this, they’re pledging to use at least 50% of recycled material and its packaging by 2030 in 10 years from now. Last year Coke was reported to be the most polluting brand worldwide according to a global audit of plastic waste. Meanwhile, Starbucks is sharing its gold becoming resource positive by 2030 and a lot of other companies are making bigger ships. I want to pass this to Laura first and just say we’re seeing soda sales decline globally due to consumer shift toward healthier living and is Coke’s decision to forego the sustainable packaging a bit miss guided?

Laura Heller:
Well, I don’t think so. I’m disappointed in it, but I’m not their customer for this product. I think that that is the point here and the relevant point. This conversation is really well timed, I think Coke reported earnings this morning and they reported growth for products like Coke zero sugar and the smaller cans of Coke, this little half kind of single servings that people pack in lunches and feel like they’re moderating their sugar intake via the smaller portions. They’ve launched a new flavored sparkling water and they’ve got another one coming in March. Coke is a savvy company, right? They know that those sales are declining and so do you chase the declining market or do you go big in the emerging markets. They’ve chosen to do the second. Now, the customer who maybe likes the re-sealable plastic bottle isn’t the one who’s terribly concerned with that aspect of their business.

Laura Heller:
It’s like whenever I think about the fast food industry and how many fast food outlets have launched healthy options and salads and tried to make a push for nutritional items on their menus and they don’t sell because the person, that customer isn’t going to a fast food outlet looking for something healthy. Maybe one person in a large group will order it if they have to eat there but by and large it doesn’t make it worth their while. I think Coke is maybe placing their bets here in a smart way. Will that change going forward? Maybe, these things get reevaluated all the time, but for them when they say their customer doesn’t want a shift, I’m going to believe them.

Julia Raymond:
Great points, I love that. The shift you mentioned and that they’re savvy, probably makes a lot of sense for them given the declining market for the soda sales. Ricardo, are you in agreement with Laura on this?

Ricardo Belmar:
I’m a little torn on this one just a bit. I agree that when I think of Coke that I know they’re very savvy, they know how to interpret and read their customer. I’m sure they have plenty of survey data that tells them this and lots of other analytical data that has convinced them that this is the right move. I don’t doubt that they made an intelligent decision based on the data they’ve got. I think to me the question underlying this really is, at what point does Coke or any other business like them feel they need that they have to chase the trends, right? The trend, you mentioned Starbucks of course, although they’re somewhat different. I know that it’s a fair comparison to make with Starbucks, you’re comparing it’s basically a CPG company with a restaurant café, but Starbucks’ customer is different, right? They’re not the same as a Coca-Cola customer.

Ricardo Belmar:
A Starbucks customer probably does have more interest in what their sustainability practices are and it factors into their choice of being a Starbucks customer. I think they in turn may have made the right decision based on the data that they have. When I heard the news about this for Coke, I actually thought of a different brand, I thought about the LEGO Group. LEGO Bricks, of course are all plastic and they have come under question in the past about what are they going to do, because they produce millions and millions of these every year and, well, I’m sure no one wants to think about their kids, they’re playing with Legos and whether any of them ever get thrown away. Eventually it’s going to happen, right? Eventually, some of these pieces are going to make their way into a waste process and what happens to all that plastic?

Ricardo Belmar:
To LEGO’s credit, they have also announced somewhat analogous to Starbucks, they are looking for more sustainable plant-based materials that they can use to replace the type of plastic they use and they’ve set a target of 2030 as well for that. You have to wonder, well, when LEGO looks at their customer, is their customer going to change the purchase decision if they don’t have this sustainability approach? I think the answer is different for each of these brands. On the one hand, yeah, I agree that Coke is probably making a smart decision given the data they have. It would not surprise me if before this target date of 2030, we hear them announce something different because these consumer trends change from year to year.

Ricardo Belmar:
If we accept the trends in the direction they’re headed, you would expect more and more people to care and have an interest in what that plastic packaging is like. But I think Laura’s point is correct and that the typical customer they’re targeting is probably less concerned about that and others and therefore from their business perspective, it ends up being the smart decision to make. On the other hand though, the only other thing I thought about when I read about this is is that, they may have been a lost PR opportunity for them and that they could have positioned a little bit differently other than just telling everyone they’re going to use 50% recyclable material when they’re really combating these competing news, right? They claim they’re the number one contributor to plastic wastes like this around the world.

Ricardo Belmar:
Now you want to know that they’re at least thinking about what are they going to do next after that 50% reduction, could they have offered any other ideas even if it was a simple statement of we’re also exploring other alternative materials and over time we may choose to use different ones, even if it’s not in the primary Coke product. Maybe it’s in one of these newer flavored seltzer water brands and other areas that they’re doing. I do think that if they haven’t made announcements like that, we may see that over time because it’s just something that speaks to that specific target customer for that product line versus the product, the main Coke ones.

Laura Heller:
I agree.

Ricardo Belmar:
I think, yeah, we could easily see things like that come from them.

Laura Heller:
Yeah, I completely agree. I do think you’re right, it was a lost PR opportunity and knowing how much Coke invest in innovation, I would be surprised if they aren’t working on something.

Ricardo Belmar:
Exactly, yeah. I would be too, I would be surprised if they’re not.

Julia Raymond:
They probably are, but maybe they don’t want to over promise because it is an issue globally, what’s the alternative? Plastic is very lightweight, it’s what the customers want more importantly. A lot of issues to tackle before a good solution comes up. The next topic, the last topic of today is Walmart. They made big news after sharing that it’s raising salary hourly wage from $11 to $12 in 500 stores. This is a wage increase that part of it is just you would call the workflow model, which is reclassifying four level employees from department-based workers to team associates. The pay for team lead is also been increased to $18.

Julia Raymond:
This new model will give some of the lower level staff broader responsibilities, they’re also empowering them with what a Walmart spokesperson said at the wider path for advancement with different training opportunities. The new CEO Walmart U.S., he spoke at NRF’s big show, John Furner and he revealed last month the company’s new vision and he told attendees at NRF, that they plan to invest in employees, a strategy that he says will positively impact retention, increase the bottom line and improve overall customer satisfaction. It’s an interesting move considering competitors like Amazon and Target already committed to $15 an hour starting wage. With that, Ricardo, do you think Walmart’s $1 increase will garner them morale boost at seeking?

Ricardo Belmar:
I think this is an interesting one, I mean, I think in the short term there is going to be some morale boost from that. Depending on your point of view, is a $1 increase significant and now if compared to what you just mentioned about Target and Amazon. Long-term, it’s that whatever morale booster is from that I would suspect wears off a bit. Some of the other things though that you mentioned may have a longer lasting impact and I attended that session at NRF where John Furner spoke. To me it was an interesting session, I read the book that the interviewer was there with John, Zeynep Ton and her book about good employment strategies. I think there’s a lot of interesting things that she talks about, she had in that book for retailer examples that had really good employee and job strategies, including some employers who are known in the retail space for having better benefits, higher pay, higher wages and better working conditions that have that reputation.

Ricardo Belmar:
I think the fact is, historically Walmart hasn’t had the best reputation in this area. It’s sort of a love hate kind of thing where sometimes there are good news that comes from Walmart, like this kind of increase, which if nothing else, it’s good news that they’re raising wages and that’s a good thing for their employees in this case. The real question is it enough or what are the other strategies? I thought at that session it was refreshing to see that he’s taking to heart this approach and the kind of things that Zeynep Ton and her research at MIT have shown about employee practices. It’s good to see Walmart being, such a large retailer they are, perhaps may try to take more of a leadership role in moving the industry into an area where they are going to have better reputations as employers.

Ricardo Belmar:
At the end of the day, we all know the retail industry is, I suppose, perhaps the largest industry employment in the country. It certainly matters as you mentioned it, there’s a tight labor market, especially for retailers. Retailers really have to be a little bit more competitive now both to reduce turnover, and historically retail has a very high turnover rate. I’m sure Walmart is considering that and that’s leading into this decision. It also kind of reminds me of, in the past, the former Starbucks CEO, Howard Bihar, he sort of had a legendary approach in my mind to this, having read some of his writings on how they looked at treating employees and his philosophy was that, you’re just dealing with people, you should be treating them like people and not treating them like assets.

Ricardo Belmar:
He was famously known that the Starbucks philosophy was that their business was about serving people first and, oh, by the way, they also sell coffee. I’m not necessarily suggesting that’s should be Walmart’s approach given what their businesses like that, I think there’s definitely things that can be done. It’s good to see them moving in this direction. In some ways, I think this is playing catch up to what other large retailers have announced. Again, for example you mentioned about Target moving to the $15 wage, I think we’ve seen plenty of examples both in general merchandise retail, I’ve seen good restaurant brand examples where they moved to that $15 wage model and can point to increases in revenue because those employees become better employees and they deliver better customer service, which translates into more sales with customers in the stores. I think this is a good thing all around that way, but again, is it long-term morale improvement? I think the $1 increase in and of itself is probably a short term morale booster. I would hope that we’ll see in the near future another announcement of getting another change that moves the needle closer for that 15 that the other retailers are doing and they’ll keep moving things forward and hope and helping morale with Walmart employees.

Laura Heller:
I imagine Walmart will do just that, right? Keep moving the ball forward incrementally because that gives them a lot of room to continue to boost morale in small doses for a few years to come given where they were starting. I give them a lot of credit because when I started covering them a generation ago, they were the poster child for bad employer, some of that was true and some of that was because they didn’t participate in their own media message and that’s a different conversation. The going was low and they’re going up and they’re doing it thoughtfully, consistently and it seems to be a genuine message, it doesn’t ring false when they’re doing it today.

Laura Heller:
In the past there were, some raised eyebrows with some of the things they announced, but as someone who’s been taken through some of the newer stores and seeing the changes they’ve implemented in terms of the mobile technology that is helping employees take a little bit more control over their schedule. And the robotics and technology that’s being put into place in terms of stockroom programs that really are helping to reduce turnover and boost employee morale in a different way than increase in minimum wage is going to. Walmart’s benefiting, the employees are benefiting.You could see a different energy level at the store from this and it’s helping to solve important pain points for the customer and really at the bottom line, that’s what Walmart needs to be doing in order to keep doing what they do in terms of business.

Julia Raymond:
Because they did roll out, I think this year there’ll be up to a thousand of Walmart stores with robots and these are, they clean the floors, they unload and store items from trucks. They pick up orders in stores, is that going to take away from jobs? Do you think that they’ll reduce the amount of employees or will it just free up some of their time?

Laura Heller:
Well, Walmart says it isn’t reducing employees, it is just reallocating.

Ricardo Belmar:
Right.

Laura Heller:
I’ve seen no indication that that is incorrect at this point, right? They have stockroom initiatives and inventory initiatives that are taking some of the worst jobs with the highest turnover and automating them or making them a much more manageable task for the store employees, and then freeing them up to work elsewhere in the store. That’s a win-win for everybody, right? Nobody wants to be unloading dock in Minneapolis in January unloading, right?

Ricardo Belmar:
Right. Yeah, absolutely.

Laura Heller:
If there is a conveyor belt in an automated process that is making that warmer and more manageable, that’s a great thing, and by the way, those people weren’t sticking around in that role for very long to begin with. It was HR drain in terms of turnover and not a plus to anybody, so which jobs are we saying, and this is just in terms of automation. Some of the other initiatives have to do with just employee empowerment, the minimum wage and the starting wage and the restructuring of some of the store tasks is a third component. They’re addressing this as an ecosystem in a way that Walmart and only Walmart can do, which is in terms of increasing efficiencies and coming up and innovating with their own solutions in this and not necessarily buying a solution off the shelf.

Ricardo Belmar:
Yeah, I have to agree. I don’t see their use of robotics at this point as being something that we should be concerned is going to cause mass job elimination. I do really think that they are using them in a way that is actually helpful to the employees that are there by just as Laura said, by eliminating some of these conditions that are just frankly undesirable, right? Like the loading dock in the middle of winter, in Minneapolis. There are things that people would do because it was the job, but then they want to be doing those things most likely not and could they be doing other things that are equally or potentially more useful to the Walmart operations at that point?

Ricardo Belmar:
Then, Sure, they probably could and I think in that case, the use of all these robots are a definite plus. Will there be other examples, maybe not at Walmart, but in other places where this robotic replacement of jobs becomes more of an issue, sure that’s potentially possible. I don’t see this as an example of one of those, I think the way Walmart has been doing in applying these robots is as thoughtful as the process we’ve just been discussing of how they’re improving wages and improving other employee training benefits and overall conditions that the robotics are just the another example of that

Laura Heller:
Just in a totally anecdotal statement here, as a reporter, I get a lot of emails from opposition to Walmart, right? The union organizers and everything else and those have really decreased in frequency these days. Usually, if Walmart, any kind of positive announcement that somebody might construe as being positive in terms of improving employee perks and benefits in wages, I would immediately get a response saying, “That’s not true and we take them to task on this, this and this.” I haven’t gotten that here. Maybe there really is some truth to it, maybe there really is some real employee sentiment that’s being changed over time.

Ricardo Belmar:
Yeah, that’s definitely a good indicator, right?

Laura Heller:
Mm-hmm (affirmative).

Julia Raymond:
Mm-hmm (affirmative). Absolutely, and thanks for sharing that with us. Ricardo, Laura, thank you both for joining the Rundown today, I really enjoyed your insights and I hope you guys join again.

Laura Heller:
I hope so too. Thank you.

Ricardo Belmar:
Thank you, I hope so too, thanks. Always a pleasure.