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June 22, 2020: Starbucks to focus on ‘to-go’ model, Walmart and Shopify announce e-com partnership, Carrefour and Google launch voice shopping in France.

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Hosted by Julia Raymond

Written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Today we’re joined by guests, Oscar Sachs, and Vicki Reyzelman. Oscar is the co-founder and CEO of Salesfloor, a software platform that allows customers to shop directly online with their local store, or favorite associate. Vicki is the strategic engagement manager of Akamai Technologies. Over the last 20 years, Vicki has led a broad range of global commerce initiatives with top 20 internet retailers and received a patent for a Yahoo TV search assistant. Oscar, Vicki, thank you for joining today.

Vicki Reyzelman:
Thank you for having me.

Oscar Sachs:
Nice to meet both of you.

Julia Raymond:
Likewise.

Vicki Reyzelman:
Nice to meet you.

Julia Raymond:
The first retailer we’ll talk about is one near and dear to my heart and probably many of our listeners, it’s Starbucks. So the coffee chain recently announced it will close up to 400 of its company-owned locations across the U.S. and Canada over the next 18 months. During the same time, Starbucks will focus on re-imagining its store footprint by expanding its “convenience-led formats,” and this includes curbside pick-up, drive-through, counter pick-up, and new mobile-only pick-up locations. This pivot toward pick-up is a bold move for the coffee chain which cited changing consumer behavior brought on by the pandemic as a key motivator in increasing its to go model locations. Starbucks says its vision for the future will have a mix of traditional Starbucks cafes and Starbuck pick-up locations in every large city in the United States. Oscar, what do you think about Starbucks’ plan to reduce cafe locations, and increase its pick-up model?

Oscar Sachs:
I think it’s very representative of what started even before the pandemic. However, the pandemic really is just accelerating that change. Whether it’s Zara closing 1,000 stores, or I would say on average, every major retailer with brick-and-mortar is looking at a 20 to 30% reduction in their store count. And I think that’s the perfect example of what Omnichannel retail should be. Retailers want to offer the customer different ways to engage in purchase versus just one way. So in Starbucks case, not everyone wants to sit in a cafe, but they still want the product. So this is very consistent with Omnichannel transformation. It’s going to happen a lot faster as retailers are putting pressure on landlords to let them out of leases in order to do this.

Oscar Sachs:
And I think there’s also another correlated trend that’s happening is the retailer has to replace that experience. All those customers were going into a store, were getting a certain customer experience, and you’re starting to see now that it’s being replaced by store associates serving customers online. We have a lot of data around this. And right now, actually, the average associate in-store is serving 94 customers online a week. And they’re converting at a much higher rate than traditional e-comm, around 14% conversion rate. So I think that the number one strategy here is how can the retailer implement these new use cases so that it’s a very good experience. So when you talk about in-store pick-up or picking up coffee from your local Starbucks that experience still has to be executed well. And if they do that, which I’m sure they will, you’re just going to see a lot more options for a customer to engage with the brand, and I think that’s a good thing.

Julia Raymond:
Absolutely, and, Oscar, you made a good point. You said not everyone wants to sit in a cafe, but there’s still a demand for the product. And you also mentioned most retailers are looking to close 20 to 30% of their physical locations. And I thought that stat you mentioned was pretty interesting where you said one associate is serving 94 customers online and the conversion rate is much higher at around 14%. Is that right?

Oscar Sachs:
Yes, that’s correct. And traditional e-comm online it converts probably between one and 2%. So there’s definitely a lot of upside. Traditional brick-and-mortar converts anywhere between 10 and 30% conversion rate. So it’s very interesting to see how the mix of the two associates serving online it comes somewhere in the middle at 14%. It’s a really good model that’s been working and retailers do need to find a way to bring the right customer experience and sales experience to their transactions. And that’s a good example of Omnichannel service as we call it.

Julia Raymond:
And, Vicki, I’d like to pass it to you. Do you think Starbucks has a good longterm play here considering it was based on community and coming to sit in a cafe?

Vicki Reyzelman:
That’s a great point, Julia. I personally love to sit and socialize in a cafe. So that’s the first thing I thought about when I saw this news is, is that social component going away, especially, in Europe where cafe culture is so popular, right? You go to a cafe and you get a Starbucks or another coffee, and you socialize with your friends. I think in the United States, though, I think 80% of the transactions now that Starbucks does are, actually, pick-up transactions. So as COVID has impacted so many things, I think it has definitely impacted how people get their coffee. And they’re definitely looking to capture the market as people commute back to their jobs, to stop at the pick-up location and get the coffee that they wanted.

Vicki Reyzelman:
I wanted to piggyback on something Oscar said around conversion because conversion rate is so critical to the success of any business. And it has been fairly consistent around that 2% for being online. So if now we’re looking at 14% conversion rate for these pick-up locations, or servicing through mobile app, for example, to have your coffee picked up, there is a big revenue upside for businesses as well as customers. And in this case, as Starbucks is trying to figure out their business models and how many coffee cups they have to sell in order to keep their locations open this probably makes a lot of sense.

Julia Raymond:
You mentioned there is a revenue upside, and I think that you made some good points, especially, considering so much of their business is now using the pick-up model, but the headlines didn’t tell the whole story. So our friends at DLC Management Corp. they pointed out on LinkedIn that while Starbucks plans to close 400 locations across the Americas, they also plan to roll out these new formats and open up to 300 new stores this fiscal year. So there’s some closing, but then there’s opening that will offset it. Do you guys think that the price points will have to change for the coffee if you don’t get that added value of the social aspect?

Vicki Reyzelman:
I think price point is something that has to be monitored pretty consistently. Starbucks, I think has done an outstanding job building their brand and also getting that wow factor. You can talk to my daughter, who’s a teenager and she’ll tell you she would love to have a cup of Starbucks coffee. To her it’s not as important how much it costs as the luxury that what it tells her peers, right? By her carrying that Starbucks coffee brand. So I think anyway even though we’re probably going to be more cost-conscious as the unemployment rate, unfortunately, is increasing Starbucks is one of those brands that people easily recognize, and I think it will help them keep their margin in these tough times.

Oscar Sachs:
Yeah, and I think the experience is definitely part of it, but I think we have some really good examples that help give an answer to that question. When Uber Eats came out and people were able to order from places that they would normally sit in a restaurant, but you were able to even order high-end food, and you were eating it in your own home, you weren’t paying less for the product. If anything, you were willing to pay for a premium in order to have that food delivered to you. I think there are many examples out there already. If you go to McDonald’s and then you go through the drive-through, you’re not getting a better price just because you’re not sitting in their restaurant. So I think that what they’re doing is they’re closing the stores and the new stores that they’re opening, those different formats are actually going to be more towards pick-up.

Oscar Sachs:
So they really are closing an older model and starting anew, and that’s the same you’re seeing in general retail, where instead of a retailer that normally had 10,000 square feet, they are saying that they’re going to open up a 2,000 square foot location. There will be much less inventory. All the inventory is just shipped straight from the web and it’s a different need that the customer has. So they have a different type of store. And that’s why they’re closing some, but opening new, but really the experience will be different. They’ll be geared more towards pick-up your coffee versus do homework, or do some work in that new location for three hours.

Julia Raymond:
And both great points. I think that these were part of Starbucks’ plans, but it was on a three to five-year plan. And like, Oscar, you mentioned many retailers are adjusting very quickly with their store formats. And this is something that was supposed to be done over time. And it’s now being condensed into 18 months, not only for Starbucks, but for many other retailers, which is a good segue into our next topic, which we spoke about last week. Walmart, very often in the news these days, hot on the heels of its partnership with ThredUp, Walmart has made headlines yet again. It announced a groundbreaking new partnership with Shopify. This move will open up its third-party marketplace to Shopify merchants. And for our listeners abroad, Shopify is the second largest online platform in the United States with more than one million companies.

Julia Raymond:
According to Jeff Clemens, the vice president of Walmart Marketplace, Walmart has placed a growing focus on marketplaces as a strategic priority that aims to be part of the solution in helping small businesses scale. Walmart says it has already started to integrate new sellers and expects to add 1,200 Shopify sellers just this year. Vicki, what are your thoughts on this Shopify partnership with Walmart? Is this a big deal?

Vicki Reyzelman:
I think it is a really big deal. And the reason I think that is that Walmart Marketplace is already outpacing overall business for Walmart. And so this is an area that they definitely want to invest in to compete with Amazon. Amazon right now has about 38% of market share based on eMarketer Report. And Walmart is at about 5.3%. So there’s definitely a gap that can be filled by expanding their marketplace to these additional players. And really, I think where they’re going to win is by providing the supply chain efficiencies by having that two-day shipping for all these providers of goods, expanding their inventory, and really making things as frictionless as possible for their customers. So it goes back to really that user experience and the price as people become more price-conscious. And if you can get that same item on the marketplace versus Amazon, and it costs you a lot less, they’re going to go ahead and shop at Walmart, which will allow them to essentially gain that market share away from Amazon.

Vicki Reyzelman:
That will require some work. It’s really going to be important for Walmart to correctly integrate Shopify stores to really provide that one storefront easy experience for customers and really build customer loyalty because I think something that Amazon has done an outstanding job on is really providing that experience for their Amazon Prime program where customers it makes it easy for them to shop there with just one-click. And I think the one-click is what allowed Amazon to gain that market share. And it will be important for Walmart not to just integrate the Shopify stores into its platform, but to ensure that frictionless experience, no matter what store the customer shops at as a part of that marketplace.

Julia Raymond:
Amazing points, Vicki. You said Walmart Marketplace is already outpacing its regular e-commerce. And the challenge here for Walmart will be truly integrating with stores in a way that makes sense and provides that frictionless experience that as to your point, Amazon has done an amazing job providing customers. Oscar, what’s your take?

Oscar Sachs:
I think the real story here is about Shopify. I think that Amazon has already proven all of this, so Walmart’s actually not innovating. Amazon has done this very successfully already, and they helped build that marketplace model. So, yes, it’s very important for Walmart. It shows their commitment to compete against Amazon. It will have an impact on Amazon, but I think the really interesting story here is Shopify, which a relatively new company, Canadian company, that is worth $100 billion dollars right now.

Julia Raymond:
Insane.

Oscar Sachs:
It’s the most valued company in Canada. It’s really interesting. Actually, Shopify is a partner of our company Salesfloor. We work with them on different things and have mutual contacts there, but I think the really interesting thing is how they have put together this powerful one million-strong base of small customers. And I think you’re going to see that their ability to compete with Amazon on logistics, and I think eventually they’re going to be competing with Walmart on logistics as well. So it’s interesting that Walmart was willing to partner with Shopify, even though eventually you will see shop Shopify as a direct competitor, but I think as a trend, what you’re really seeing is outside of luxury, I would say, but for certain retail segments, you’re seeing that a retailer’s competitive advantage is less about what products they’re known for.

Oscar Sachs:
It’s going to be more about how they sell it like what Vicki’s been talking about. Walmart doesn’t want to be limited to their past assortment, or current product assortment. They just want to be the number one place for customers to shop. And if they can do that, they want to be able to sell them anything, whether it’s from their own buyers, or whether it’s from a marketplace of thousands of businesses that can drop-ship, for example. And that’s why the marketplace is so important. And, again, they’re really just replicating what Amazon has already proven out.

Oscar Sachs:
I do think there’s a second innovation that’s coming out of this beyond the marketplace strategy and it’s all around the ability to serve customers. And that’s really where our business, Salesfloor, we specialize in how associates are serving customers online and in-store. And what we’re starting to see is how are these small businesses of Shopify besides shipping products and selling products through Walmart can also serve that Walmart online shopper? Because if you have a manufacturer and he’s an expert in bicycles, if you can connect that manufacturer to the online shopper on Walmart as they’re making decisions, and you’re bringing that manufacturer’s product expertise and their ability to service the Walmart customer versus a self-service environment online, you’re going to see a much higher conversion rate.

Oscar Sachs:
So I think a key evolution right now not only are retailer store associates serving customers online as well, but all of these network marketplace vendors are going to be integrated into the retailer’s online experience. And they’re going to be able to service customers directly on Walmart’s site, on Amazon’s site, on Saks Fifth Avenue site. And they’re going to be able to directly impact conversions on that site as well as the customer experience.

Julia Raymond:
I really like what you said about it’s less important what products or brands a retailer is known for selling outside of the luxury category. And now it’s more about how much they’re selling and do they have what you’re looking for when you need it? The whole convenience factor that’s so popular right now is a topic in retail. And you also mentioned bicycles as an example as an example. And we actually had the CEO and founder of Erik’s Bikes, which is the largest independent retailer of bicycles across the U.S. on the Rundown last week. He mentioned that one of the things retailers are struggling with is how do you scale your associates to be able to provide that service online through those channels, especially when it comes to more premium products, or just having the ability to do more than what you’re used to, right?

Julia Raymond:
So it’s really a challenge for retail and I’m interested to see how things go. Just out of curiosity, I remember someone saying Target, for example, is the new department store for Millennials. Do you guys agree with that as we keep hearing about more malls closing and the troubles Macy’s is facing?

Vicki Reyzelman:
I agree with it. I mean, I can see that with just the shopping patterns of my friends, and, again, my daughter that there’s definitely preference to go to Target to get that affordable clothing, to have that experience, but the other thing that I think Target has done an incredible job on is integrating the pick-up at curbside. So you can actually download their app, and get the items that you need without really even going into the store, but to Oscar’s point, I think that experience has to change. That might work for things like if you buy a T-shirt, for example, that probably works fine. You know your size, you can pretty much get the T-shirt that you want, but when it gets to more complex, or even more precise items, a dress that fits you, or a bathing suit, it’s hard to buy those things online without having any guidance.

Vicki Reyzelman:
And I think that’s where technology will probably start coming in as well, interaction with the customer. Maybe augmented reality at some point, or virtual reality where you can try something before you buy. I know Lowe’s, for example, is the other company that’s currently letting you try their chainsaws without actually going to the stores through virtual reality. So there’s a lot of innovation, I think right now that’s happening that allows customers. Millennials are definitely great with using mobile phones to purchase, and the Z Generation feels comfortable with that as well. So providing that extra feeling of, well, how is this going to work within your home, or how is this going to look on you? Having that feedback before you buy it, I think is going to be even more critical. So maybe more of those interactions to Oscar’s point will happen with an associate in mind where you could ask a question, or you could ask for a recommendation without having to go into Target and have to try things on, which could potentially expose you to COVID at this time.

Julia Raymond:
Oscar, do you agree with Vicki that, yes, Target is becoming the new department store?

Oscar Sachs:
Well, I think there’s a macrotrend happening, which is it’s almost like the weakening of the middle class is the same as the weakening of those mid-tier retailers. Luxury is growing and continues to grow very strongly. And the discount stores and mass merchandisers are growing a lot and all the bankruptcies are happening with the mid-tier apparel and other types of retailers. The reason for that is, and I guess it applies to the Millennials is you want a one-stop shop. Target is certainly going to be providing you a very wide assortment. And, unfortunately, that weakening of the middle class it means that you’re either shopping and buying $2,000, $3,000 handbags at luxury retailers, or you’re moving towards the discount. And I think that’s a real difference that’s happening, which is why Millennials, for sure. There is no middle guy as much that you can go shop with, so you’re going to gravitate towards the discount stores.

Oscar Sachs:
And I do agree with Vicki, there’s a big gap and it’s existed since e-comm started the experience online is self-service and the experience in store, which is what made those brands so successful is completely different. So just because stores are going to be changing or reducing, and just because online is going to take off does not mean you don’t have an obligation to serve customers. At a website that is self-service it will be commoditized by Walmart and Amazon. So you absolutely have to figure out how to integrate a sales experience, a customer experience that is at par with your store and bring that to the online experience and real people, store associates will be equipped with technology will be an important formula for that.

Julia Raymond:
Absolutely. My hope is that, although, we do have a little bit of the weakening of the middle class as you mentioned, Oscar, and that’s why we’re seeing some of this polarization with the luxury and mass merchandisers categories growing and the boring middle shrinking, hopefully, that can be offset by these personal relationships that brands can build through the newer channels. And I like both comments that you guys brought on this topic so thank you so much for your insight. We’re going to hop to the third and last topic of today, which is switching over to grocery.

Julia Raymond:
So in France, grocery shopping will soon be as easy as saying, okay, Google. French grocer, Carrefour, and Google announced last week they are launching a voice-based grocery shopping service. The move comes as part of the retailer’s ambition to accelerate its expansion into food e-commerce. The new service will allow users to add items to a digital shopping list by saying generic words such as milk or eggs to their Google Assistant, which is connected to Carrefour’s inventory. In 2019, strategy consultants at OC&C predicted voice shopping will grow to 40 billion-plus across the U.S. and the UK by 2022. So pretty huge. Oscar, what’s your take on Carrefour’s new partnership with Google?

Oscar Sachs:
I think that’s exactly the kind of synergies that help the industry leapfrog. It’s kind of that expression that you’re being at the intersection of technology and a certain industry. When you combine those two, and when you start combining different technologies, by the way, that’s when you start seeing exponential growth. So in this case, voice recognition is really at the heart of this, and AI is also going to be at the heart of this. And when you take those emerging technologies and you combine that with e-comm, you will start to see, I think, exponential change, but, again, I think, that really does apply to more transactional purchases like buying the same cereal or grocery week after week. I think, again, in areas where you will need sales expertise, I think, you’re not going to see that take off.

Oscar Sachs:
I think it will be more those technologies will be equipping the salespeople to better serve their customers, but I think it will be more in the transactional type of products where you should be able to simply ask for what you want and get it. And we have some examples here as well, a tractor supply company, which is a huge company. You can order products from them just by text and voice recognition, and it’s pretty efficient. And I think it’s a good example of how easy it is going to be to buy repeat products, especially.

Julia Raymond:
And I like how you said from your point of view, it’s going to be a greater focus on the repetitive transactional purchases when it comes to being supported by AI and voice technology. Vicki, do you agree with that?

Vicki Reyzelman:
Absolutely. It definitely has to be repetitive purchases, right? Because for things that you haven’t tried yet, or even a brand of say you’re buying a certain brand of eggs, well, you always buy the same brand over and over. It’s easy to reorder that versus if you wanted to try a new brand of milk and/or something else at the store, for example, and you wanted to do that and you just said milk, well, it assumes that it’s the same brand, right? So it becomes to understanding that 80/20 rule, essentially loading up the catalog of items that people purchase most often and making them what’s successful and really focusing on ensuring that it’s a repetitive purchase because one of the things that we could potentially run into is fraud, right?

Vicki Reyzelman:
Imagine a little kid, I mean, running by and screaming, milk, milk, milk, eggs, eggs, eggs, and next thing you know you have three cartons of eggs by your door waiting for you. I mean, it’s a very possible scenario. I’m sure there will be safeguards to prevent some of that, but at the same time if Google’s always listening to what you’re saying, there is a potential for that discrepancy to happen. And so to make sure that someone doesn’t get stuck with a bill for products that maybe they didn’t mean to purchase in the first place.

Vicki Reyzelman:
And I think the other thing is the conversion rate. I know Oscar’s big on it. I’m actually really big on conversion as well, just because that’s what’s really driving the revenue. And so what will be the conversion rate for voice? And if it’s 100%, obviously, it won’t be that high, but if someone wants something from the store, more than likely they’re buying it, right? They’ve made that command that they really want that milk and they want it tomorrow. So it’s essentially 100% conversion rate. There’s very low cost to either Google, or actually to the store to provide that to the consumer, right? There’s very little overhead cost.

Vicki Reyzelman:
And so potentially the platform has growth, but I think for more complex items it’s going to be really, really hard because we’re such visual people and we love to browse, right? There’s a reason why that conversion rate is only 2.8% for online sites or so, it’s because people love to browse. They like to go and they like to see what they’re buying. They like to compare things. That’s part of the experience that they want to have. And so the question is for that what is the experience with voice? Is there going to be a consultant online that will say, okay, let me talk you through this, or let me send you a link to this product so you can see if this is what you’re looking for. So that is something that I think that people need to think through a little more as they adopt the voice platform for their products.

Julia Raymond:
Great points, Vicki. I really like that you brought up the visual component because that is so important to humans and the shopping and discovery experience. It reminds me of a conversation I had a while back with Doug Stephens where he spoke to the potential for a connected pantry of the future where voice wouldn’t even be a factor, your pantry would be connected with a certain retailer or group of retailers, and it would auto-replenish. Is that something you guys see happening within the next five years?

Oscar Sachs:
I think so. I mean, they’ve been talking about that, by the way, since the early 1990s. It’s all around the internet of things. It makes sense. I mean, there’s no reason why you can’t keep track of inventory in a fridge. And I know that there have been smart fridges, for example, that have been coming out. And I think the pandemic has really made groceries leapfrog with technology not because they weren’t thinking of those things before, but because consumer behavior was so entrenched. I’d go into the grocery store and then the pandemic just blew that completely out of the water. I don’t know anybody who’s been delivering groceries to their house for the last three months is ever going to go back. I think that they might go for their fruits and vegetables, but I think they saw how easy it was to keep ordering. It’s hard to tell five years or not, but I definitely think it’s around the corner. And I think now that people are used to ordering and having it delivered, it will help the adoption of that technology.

Julia Raymond:
Vicki, voice seemed to be such a hot topic just a couple years ago. And it seemed to fizzle out just a little bit, at least from my perspective. And why do you think that is? Is it because the conversion rate is still lower and because people are still not big adopters of the technology for shopping?

Vicki Reyzelman:
That’s a great question. I think anytime a new technology comes in it takes a little bit of time. And I think Generation Z, for example, feels probably a lot more comfortable using voice technology, commanding Siri to do this and this then maybe the Baby Boomer generation does, right? So it’s more of the interaction model about what your consumers actually want to do with the platform, and how familiar they are with performing that action. I think in the future as Generation Z gets older and they’re so familiar with that interaction, they’ll feel a lot more comfortable ordering their groceries with voice.

Vicki Reyzelman:
And I have to agree with Oscar. I’ve started delivering my groceries and I don’t think I will go ever back to just going in the store because it’s so easy, right? There’s a specific list of groceries. I pretty much buy more or less the same things for my family week to week, maybe outside of some of the specials that they run. And so it’s very easy for me to reorder food as well as I feel I save so much time just not having to go into the store and get distracted by the additional products and maybe it even saves some money, right? Because then you’re not adding more things into your cart that maybe you didn’t think that you needed in the first place.

Vicki Reyzelman:
So I think in the end, voice is probably going to be a platform that will be used by whether it’s connected fridges, or just our mobile devices, where we feel comfortable reordering the items that we’re familiar with. And, again, for the newer ones that’s where we’re going to need a lot of the guidance from whether it’s the store associate that helps us, or some sort of artificial intelligence chat bot that we can interact with to get the information that we need, or even video and images. I think before people always said, well, websites were all about images, and we’ve been working really hard at Akamai to offload images through content delivery networks, but video is really where the future is, and if you look at Lowe’s, and some of the other providers that actually have done amazing during COVID just because more people are purchasing things online they’re really looking to do more through their mobile apps, and for voice, and that interaction model I think is going to expand as people feel more comfortable with using that technology.

Julia Raymond:
Really great points, and I like how you mentioned it’s just so easy to buy those repetitive purchases again and again with the click of a button, but it does pose issues for grocers, right? Because there’s less opportunity for impulse buying, less opportunity for profit margin, so it will be interesting to see how things progress. I wanted to take a moment to thank you both again. Oscar Sachs, CEO of Salesfloor, and Vicki Reyzelman, strategic engagement at Akamai Technologies. You both have been great guests on the show, and I’m so happy to have you join today.

Vicki Reyzelman:
Thank you, Julia.

Oscar Sachs:
Thank you, Julia, it was a pleasure.

Vicki Reyzelman:
It was a pleasure.