March 9, 2020: Panera Bread’s monthly coffee subscription, Amazon Go Grocery, Target to test c-store sized format.

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:
Today we’re joined by Sanford Stein and Bob Phibbs. Sandy is the founder and moderator of RETAIL SPEAK on LinkedIn. He is the author of Retail Schmetail, and regular contributor at Forbes. He is also a RETHINK Retail advisor.

Julia Raymond:
Bob, also known as The Retail Doctor, is an internationally recognized business strategist, speaker and brick and mortar expert. They are both joining me today. Thank you Bob and Sandy, for coming on the show.

Bob Phibbs:
Great to be here.

Sandy Stein:
Thanks for the invite, Julia.

Julia Raymond:
Absolutely. So today, we always go over three topics. These are all retailers, we’re focusing on today.

Julia Raymond:
The first one we’ll touch on is Panera Bread. They’re hopping on the subscription bandwagon. So, for our listeners across the pond, Panera Bread is an American chain store of bakery, cafe, fast casual restaurants owned by the Netherlands based JAB Holdings Company. And they have over 2000 locations, they’re across US and Canada. So, Panera’s new coffee subscription program, it allows you to purchase unlimited beverages, coffee or hot tea, every two hours. And it is $8.99 per month. So, just under $9.00. They’re rolling out the program nationwide after a very successful pilot. And the subscription plan is going to be rolled out to Nashville, Raleigh, Cleveland, and Columbus.

Julia Raymond:
So, the pilot, they’re reporting a 200% increase in frequency of visits, along with a 70% increase in food purchases and a very high renewal rate of 90 to 95%. What we don’t know is, what those percentages are based on. So, I will point that out. But first I’ll pass it to Bob. Does a coffee subscription program have a longterm potential? Yes or no?

Bob Phibbs:
No.

Julia Raymond:
No?

Bob Phibbs:
And as a CMO of a coffee franchise, we built It’s a Grind Coffee, if you ever saw Showtime’s Weeds, we were the coffee house that Mary Louise Parker was drinking out of. And, try explaining that to your franchisees, that it’s great that a mom is selling pot with your brand. But, you know, coffee business is an addict business. They’re there, all the time. And your favorite is still going to be Starbucks or McDonald’s or Dunkin, and you like it because of that.

Bob Phibbs:
A lot of brands have tried this before and it’s a big scoop for maybe six months, but executing it and holding onto it, just doesn’t seem to ever drive sales. So to your point, I’d be curious to see what this was based on before, and quite simply, most of America, I think it’s something like 80% of America, drinks coffee before 10:00 AM. So, it’s not a big output for them, if they come in, in the afternoon. So, I’m curious to see what Sandy says.

Sandy Stein:
I’ll take issue, I’ll be bold. I think there’s a chance that it could work. I think that, particularly getting into, if we’re on an economic down slide, if a recession is hitting, I think those people that are thinking that, “I’m spending $5.00 a day at Starbucks, I can get a 30 cent cup of coffee and turn that $5.00 into my breakfast.”

Sandy Stein:
Does it work long term, is a good question. Could they actually get a bump, short term? I’m thinking it’s probably, it could be, yes. I think their big objective here is to build breakfast. And I think that if people begin to see the opportunity of getting a free cup of coffee, and having a bagel or whatever else at the same time, it could potentially change behavior for some people.

Bob Phibbs:
Yeah. I still don’t buy it, because it still has the asterisk, “Only if you’re getting drip coffee.” And again, is this a value play? Because people don’t have money? If people don’t have money, they’re not going to Panera Bread.

Julia Raymond:
That’s true.

Bob Phibbs:
So I, it’s confusing to me, to just figure out who this is and then also being at the front line when they’re like, “Oh, well you know, espresso drinks aren’t included.” Well, that’s what Starbucks sells. “Oh you know, cold brew and iced tea and other beverages, they’re not included in your subscription either.” It just seems like there’s got to be a lot of executional misses, which are going to doom this program from the start. So we should talk in six months, and see how this works, Julia and Sandy.

Sandy Stein:
Interesting, interesting.

Julia Raymond:
I will add, there’s been a lot of hype around this, online, and I think some people are excited. But maybe not everyone knows there’s limitations, that you can’t get the espresso or the cold brew or the iced tea. Personally, I love cold brew, so I probably wouldn’t opt into this program, unless that was included. And I also think it depends on the market. It’s probably not going to be very sticky where it’s a commuter city. And, you don’t walk to a Panera on your way to work. I think there’s areas where it might be sticky, but in general, I don’t see it working for a national rollout.

Bob Phibbs:
There you go.

Julia Raymond:
Cool. So we have, we have a yes and no, and I guess I’m in the middle, but I’m more towards pockets where it might work.

Bob Phibbs:
I won you over, you know it. I won you over.

Julia Raymond:
Well, Sandy made a good point too about, $5.00 for a cup of coffee at Starbucks, but again, there is a different level when you’re talking about Starbucks coffee, with-

Bob Phibbs:
You’re not going to Starbucks because of the money. Hello?

Julia Raymond:
… No.

Sandy Stein:
No, no.

Bob Phibbs:
And that’s where the money is.

Sandy Stein:
I’d say, there’s some people that would give up breathing rather than, not getting their Starbucks. So, you’re not going to change their habits.

Julia Raymond:
Absolutely not. I know a lot of Starbucks addicts out there so, that’s true. So it sounds like we have a good debate, healthy debate there.

Julia Raymond:
The next retailer we’re going to talk about is Amazon. So, they’re in the news a lot. Their Amazon Go Grocery just opened.

Julia Raymond:
They’re moving full speed ahead with its vision for a friction free future, and they opened its doors, the first grocery store last month. It’s different from their Whole Foods. This is located in Seattle. The store combines a full selection of traditional grocery store items, with checkout free technology that’s been popularized by its smaller format Amazon Go locations, and the store offers an assortment of private label selections like Happy Belly dairy products, single cow fresh meat and fresh bakery items. And this format allows customers to bag while they shop, and you have the option to pay through your Amazon app, or with cash at the kiosk.

Julia Raymond:
So, I took a look on Instagram. It seems like there’s some buzz on that platform, about 500 posts with related tags as of this recording. There was one Instagrammer who visited the location and gave a little summary. And she said, “You download the app, you scan your phone at the entrance, you grab whatever you need to, you walk out and then you’re charged through the app, for whatever you took. And the location also has free parking, with a vending machine that validates that for you,” because it is in Seattle. Sandy first, will check out free grocery increase shopper’s basket size?

Sandy Stein:
I take a pretty cautious look at this. I think it’s a lot of good PR, for Amazon. I think that Amazon Go has been great PR, for Amazon. I think the technology is very expensive. I think that the idea that they’re either going to scale Amazon Go, which they, going back to the original announcement in about 2017, they were predicting they would have two to 3000 stores, and there are 25 to date.

Sandy Stein:
I think that, the technology is very interesting. They’re not alone. There are about five other players that are that creating and offering the same cashier-less technology to retailers. And the other thing that bothers me about the… I think it’s cool, and I get it, but I think that there’s a lot of packaging involved. It’s extremely labor intensive, to prepare all of these products, that ultimately have to be stocked very carefully within the stores.

Sandy Stein:
So, the illusion that this is a labor saving undertaking, is more illusion. It does save time for the consumer that’s coming in and, grabbing and go. I question as to whether or not it is meant for a larger format like this Seattle Capitol Hill neighborhood, that the first one is open. It will get a lot of press. There will be a lot of people talking about it. I don’t see this rolling out to big multiples, anytime soon.

Julia Raymond:
Bob, do you want to jump in? Do you agree, it’s not going to be picked up too quickly with other grocery chains?

Bob Phibbs:
Well, let’s separate the technology from this. Amazon still hasn’t figured out brick and mortar retail. Sorry, newsflash, they’re great online, but Whole Foods is not as good as it used to be. And they certainly didn’t prove it with, to your point Sandy, they’re going to open all the Amazon Go stores. “Oh, whoops. We’re opening a fraction of those.”

Bob Phibbs:
And most grocers would say, “What the hell is the shrink on this?” Because most stopped self-checkout, for a lot of reasons. And the question I have, if I was to go into this, “Am I on the schedule today? I’m supposed to bag my stuff and ring it up. I don’t want to do that. That’s not my job.”

Bob Phibbs:
So maybe some people will find that, that’s great. Maybe they’ll enjoy their free Panera coffee next door, for 30 cents a cup. But at the end of the day, Amazon gets pressed, because they try things. And yes, that’s good. But the reality of shrink and some of the other things? Look, they’re going to try to sell this technology to other people. And other people are also figuring out that, to put a million dollars worth of technology into a store, it just doesn’t make sense.

Bob Phibbs:
So, I am not one of those saying, “If Amazon does it, it must be perfect.” I say, Amazon gets a lot of reach, they get an awful lot of pixels, but at the end of the day, drones and a lot of other things that they have said were going to be ubiquitous within their retail empire, just haven’t proved out.

Bob Phibbs:
So, again, I get it. Maybe I’m a millennial, and I want to go bag my own stuff and use the app, but at some point, groceries shouldn’t be about me figuring out how to do stuff. It should be me buying impulse items. And if I’m going to be working off my phone the whole time, I’m probably looking down, not up to the private label items. So I think there’s a lot that is unclear about this test, and I doubt we’ll ever find the true story behind it, as they go through it. It will just end up being absorbed into something else or sold, or whatever.

Sandy Stein:
It is fair to say that 7-Eleven is looking at this, and they’re doing a test store, as well. I think that if we watch what they do, you’ll get much, a better read on the profitability and the cost benefit of the whole idea, because they’re not going to roll out if they’re not making money. Amazon loses money every day on stuff like this, just because they can. So I think the truth will be told, to the degree that 7-Eleven actually moves ahead, with more than just a test store.

Julia Raymond:
And to the point about cost, it’s, I read somewhere online, it was reported that the Amazon Go convenience format was at least one million dollars to implement, and the grocery store format they rolled out was three times the size of that. So it is a large investment, that would take a while to recoup, and I’m not sure if the format is right for grocery. I think it’s definitely something convenience stores should be doing.

Bob Phibbs:
Yeah, I definitely, I agree with that. There could be a space in their smaller Amazon Go stores, where you’re dealing strictly with snacks and, take and run and eat kind of things, that justifies a 500 square foot investment in a very dense urban area, where you can get a return on it. But I can’t see the economics working in a 10,000 square foot grocery store.

Julia Raymond:
Well, good points. I think we’re both, or, we’re all three hesitant on the Amazon Go Grocery. And to Bob’s point, they do get a lot of press because they try new things.

Julia Raymond:
So, the next retailer we’ll talk about is also trying new things and they’re doing very well. Target is betting big on small format. Last week they had their quarterly earnings call, and the CEO announced that they plan to open more of their small-format stores, and test new C-Store-Size formats.

Julia Raymond:
Last year they opened their hundredth small-format store and they have 36 more planned openings this year, so they expect to sign the first lease for the C-Size store, approximately 6,000 square feet, later this year, and their COO says, “Pint-size stores offer the categories that guests want from Target, like beauty, home, grab and go food, and to operate as mobile pickup locations.”

Julia Raymond:
So, I will pass this to Bob. Does this very small format, the C-Store-Size format make sense, for the Target brand?

Bob Phibbs:
I think people still underestimate Target. I think Target certainly understands exactly how to deliver at scale. I think their supply chain is up to snuff. I think their renewed focus, just like Walmart built 200 training centers a couple of years ago, and they are reaping the benefits. I think Target did the same thing, to their stores. And they certainly understand that having a variety of ways that people can buy from you, as long as they can execute well, really grows the brand. I don’t think Amazon can do this, with Whole Foods.

Bob Phibbs:
And, I just had to go back to the grocery thing for a second, because I was thinking about this concept called Fresh and Easy, I think it was. It was around, probably 15 years ago, and the whole idea was they were going to have this curated private label, and everything, and you were going to do all the work. And they went out, pretty quickly.

Julia Raymond:
Because it wasn’t easy.

Bob Phibbs:
Yeah, because I kept trying to rack my brain like, “What was the name of that place, called?” Anyway.

Bob Phibbs:
So I think that they get it. I think, also, that every retailer understands, “If I know what’s in the basket, then I can sell all kinds of other things.” So, if I know that certain types of food, I know you’ve got kids, I know someone’s sick, I know someone has special needs, whatever it’s going to be. The more data points they can pull into the universe, the more that they can really put their arms, figuratively, around that consumer. And I think, again, at a much better scale than Amazon can do. So, I don’t see anything that’s a downsize for this at all.

Julia Raymond:
Sandy?

Sandy Stein:
I would agree wholeheartedly with Bob. I think, being from Minneapolis and following Target very, very closely for decades, they have clearly got their act together. I think that they’ve demonstrated clearly, with the hundred small format stores, which range in the area of about 12,000 to about 40,000 square feet, that those stores in more dense urban areas and college campuses, have been hugely successful for them.

Sandy Stein:
They’re generating greater dollar per square foot. They have more flexibility in terms of real estate. They can manage their product variety to a neighborhood, to a city, to a very highly curated demographic. And, have the wherewithal of doing all of the things that Target does well, including seasonality, including special things that are going on in a given market.

Sandy Stein:
And, it’ll be interesting to see what the super small store does offer. I think it’s going to be a greater variety of goods than what we commonly refer, or commonly think of, when we talk about a convenience store. I think 7-Eleven, which is mostly food and snacks. And Target will do a 6,000 square foot store that literally will be a shrunk Target. It will have a little bit of a marketplace grocery in it, but it will predominantly be their mixture of hard goods, of soft goods and the things that will resonate with the population, in these urban or college campus areas.

Julia Raymond:
And I will say, Bob, you noted that it’s, maybe underestimated, Target. And Walmart is 20 times the size of Target in terms of revenue. So they are a smaller player, but with their small format stores, they just surpassed one billion in annual sales. So, is this something Walmart should learn from? Because I know their brands are different. Target is more premium. You’re more likely to buy certain types of items from Target than Walmart. But is, should Walmart be following in their footsteps?

Bob Phibbs:
Well, Walmart tried this, and then they closed them down. So I think they realized, “This isn’t our market.” And I think one of the things we’re noticing about Walmart is, they’re willing to throw stuff at the wall and see if it sticks. And if it doesn’t, they’re getting out of it pretty quickly, and moving on. So again, I would go back to the idea that, Target understands it and they are willing to place the bets that they have enough data points, now.

Bob Phibbs:
I would certainly, I could certainly see Target could end up being a 7-Eleven, if they wanted to. They could, because they’ve got this convenient, let’s face it, Target is a millennial’s department store. And so, they can leverage that. Whereas Macy’s going smaller, you’re like, “What is that, like Macy’s-ette? What is that?” Target can get away with it, because the promise is, that they’re going to have what you need. And with their localized assortments, I think there’s no reason to believe that they can’t excel at this.

Julia Raymond:
And I loved, Sandy, your points about the different assortments that Target’s able to offer, and add in neighborhood goods and local things. So, really good points from both of you. Thank you for joining the Rundown. I always love having you both on the show. It’s great to hear from you.

Bob Phibbs:
Always great to be here.

Sandy Stein:
Well, great, thanks very much for the opportunity.

Julia Raymond:
All right, until next time.