Amazon examines bigger uses for its cashierless technology

Amazon examines bigger uses for its cashierless technology

Several months ago we speculated Amazon would do more with the cashierless checkout technology that powers its handful of Amazon Go stores, and that now seems to be the case. We should expect Amazon to be tight-lipped per usual on what its plans are, but whether it means to keep the technology in-house at its Whole Foods Market, Amazon Bookstores and its Four-Star Store or license the technology to other retailers it’s likely to set off a wave of change that fits with our Disruptive Innovators investing theme. The risk of a competitive response or if Amazon does license the technology is low paying jobs, which would make widespread adoption of the tech a tailwind for our Middle-class Squeeze investing theme.

Amazon.com Inc.  is testing its cashierless checkout technology for bigger stores, according to people familiar with the matter. If successful, the strategy would further challenge brick-and-mortar retailers racing to make their businesses more convenient.

The online retail giant is experimenting with the technology in Seattle in a larger space formatted like a big store, the people said. The systems track what shoppers pick from shelves and charges them automatically when they leave a store. Although the technology functions well in its current small-store format, it is harder to use it in bigger spaces with higher ceilings and more products, one of the people said, meaning it could take time to roll out the systems at more larger stores.

It is unclear whether Amazon intends to use the technology for Whole Foods, although that is the most likely application if executives can make it work, according to the people. Amazon has previously said it has no plans to add the technology to Whole Foods.

The cashierless system is already in use at seven Amazon Go convenience stores in Seattle, Chicago and San Francisco. The company plans to build more of these small stores, according to one of the people familiar with the matter. Each is typically less than 2,500 square feet and sells a range of drinks, prepared foods and groceries.

Bigger Amazon Go stores would represent another threat to traditional grocers disrupted by the online retail giant’s rapid advance into food retail. Whole Foods, which Amazon acquired for roughly $13.5 billion in 2017, has since added grocery pickups and one-hour delivery. It also has lowered prices for Amazon’s Prime members.

Source: Amazon Tests Its Cashierless Technology for Bigger Stores – WSJ

Blue Apron and GNC, two examples of the struggle to fight against thematic headwinds

Blue Apron and GNC, two examples of the struggle to fight against thematic headwinds

 

In Tematica Investing, we focus on companies that are benefitting from tailwinds associated with our investment themes. As a good institutional portfolio manager knows, avoiding problematic investments is critical as they can sabotage returns to be had from well-positioned ones. In our Tematica lingo, that means avoiding companies that have thematic headwinds bearing down on their businesses and buying companies that are rising the tailwinds.

 

No need to revisit Blue Apron shares

We’ve been bearish on shares of Blue Apron (APRN) and we’ll try not to pat ourselves too hard on the back as we take a victory lap on that call.

As we saw yesterday, there is a good reason to remain that way as Walmart (WMT) is formally getting into the meal kitting business. While many were expecting Amazon (AMZN) to leverage its Whole Foods Market business with its own meal kitting offering (we still are), Walmart is leveraging its position as the largest grocer to enter the fray. The goal for the brick & mortar retail giant is to help build its digital footprint as well as take share from the restaurant industry, which has been pressured by weak traffic and average ticket pressure. Odds are Walmart is also looking to ride the consumer shift toward healthier eating and snacking that is part of our Food with Integrity theme along with a hefty dose of our Connected Society one.

All in all, this looks like a good extension for Walmart and one that is poised to make an already challenging environment even more so for Blue Apron.

 

 

Struggling GNC Holdings looks East

Another company that has been running into a significant thematic headwind is GNC Holdings (GNC). Once a dominant player in the sports performance and nutrition space (otherwise known as body-building), the supplement retailer has been attempting to reposition itself to a wider audience as a seller of “health, wellness and performance products.” As the performance market has moved online and to other sources, GNC has been attempting to capture more women and appeal to the Boomers and their set of nutritional needs, which are far different than the iron clangers in the free weight section of the gym.

To say this stock price chart looks like a one-way roller coaster that only goes down would be an understatement. A better comparison would be an alpine slide that starts extremely high up a mountain, has several twists and turns, but only goes in one direction – down. Since peaking in late 2013 near $60, that’s exactly what we’ve seen with GNC shares as its profits turned to losses despite a comparatively modest dip in revenue over the last few years.

 

 

In perusing the company’s latest 10K filing, the company offers up an explanation of sorts: “Prior to 2017, we had been experiencing declining traffic trends leading to decreasing same-store sales in our retail stores. After extensive consumer research and market analysis, we determined that our business model needed to be reimagined.”

Not exactly what a shareholder, existing or prospective one, wants to hear, but at least we can credit the management for not acting like an ostrich with their head in the ground as Amazon rolled into space as did others. The combination of having to “reimagine” its business model as well as fend of competitors led annual Selling, General & Administrative expenses to rise over 2015-2017 as revenue shrank, pushing GNC to deliver bottom-line losses.

Digging into the financials, the company experienced negative same-store sales in every quarter during 2016 and the first two of 2017. Making matters worse, average transaction amount was in negative territory over the last five quarters, and sales at GNC.com sales were falling as well. December 2017 quarterly sales were up 0.2% in company-owned stores vs. down 1.2% in the September 2017 quarter.

Not exactly a recipe for success, but clear signs the company could be in turnaround mode. What makes this potential turnaround interesting is the new partnership with CITIC Capital and Harbin Pharmaceutical Group. As a way of background, CITIC Capital is a global investment firm with a strong position in China and the Harbin Pharmaceutical Group is a joint venture of several China-based pharmaceutical companies. CITIC will invest $300 million in the form of a newly issued convertible perpetual preferred security with a 6.5% coupon payable in cash or in kind and a $5.35 conversion price. GNC will use the funds to repay existing debt and for other general corporate purposes, and on an as-converted basis, CITIC will hold roughly 40% of GNC’s outstanding equity. That’s a significant shareholder and one that will also appoint a total of five members to GNC’s newly expanded 11 member board.

The company expects the transaction to close in the second half of 2018, but it will require regulatory approval in both the U.S. and China. Given the current geopolitical tensions we are reading about almost daily, there could be some speed bumps associated with these approvals. Also too, GNC is ramping marketing associated with its recently launched pricing strategy and loyalty program, One New GNC strategy in the current quarter. This likely means margin pressure is poised to continue.

The bottom line is even though GNC is facing steep competitive domestic pressures, it’s new relationships could pivot its business but there are several hurdles to be overcome. Keyword being “could.” The risk related question I find myself asking is “Yes, I understand what the management team is saying, but what if the pivot or turnaround doesn’t happen as expected?”

We’ve seen many a company that in the face of thematic headwinds and mounting competitive pressures have attempted to reposition their businesses. Few have succeeded. My gut tells me that GNC, much like Blue Apron, Blackberry (BBRY), Angie’s List, GoPro (GPRO), Fitbit (FIT) and others, is on the road to nowhere for investors. But that’s my gut, which means reminding myself to keep an open mind and watch the data as it becomes available.

 

 

 

Amazon moves one step closer to disrupting the grocery industry

Amazon moves one step closer to disrupting the grocery industry

After Amazon acquired Whole Foods, it seems that many forgot about its prior effort to disrupt the grocery industry with Amazon Go. Now the company has shared that it is close to bringing this worker-less concept that relies on its mobile app and a litany of sensors to allow shoppers to do their thing all without standing in line to pay. That sounds like a nice combination of our Connected Society, Disruptive Technologies, and Cashless Consumption investing themes. Certainly not welcome news to those grocery companies like Kroger (KR), Sprouts Farmers Market (SAFM) and a number of others look to contend with Amazon-Whole Foods.

For the past year,  Amazon employees have been test driving Amazon Go, an experimental convenience store in downtown Seattle. The idea is to let consumers walk in, pick up items and then pay for them without ever standing in line at a cashier. Amazon is vague on the mechanics, but the store relies on a mobile app and some of the same sensing technology that powers self-driving cars to figure out who is buying what.

Amazon Go represents Amazon.com Inc.’s most ambitious effort yet to transform the brick-and-mortar shopping experience by eliminating the checkout line, saving customers time and furthering the company’s reputation for convenience.

On Wednesday, Whole Foods began offering deep discounts on Thanksgiving merchandise, including antibiotic-free turkeys, and signaled that the markdowns will get more aggressive as it adopts Amazon’s Prime subscription service. Shares at Kroger and Sprouts tumbled after the announcement.

Source: Amazon’s Cashierless Store Is Almost Ready for Prime Time – Bloomberg

More cyber pain as Whole Foods and Sonic are hit by hackers 

More cyber pain as Whole Foods and Sonic are hit by hackers 

Another day, another cybersecurity breach. Or so it seems as this week two high-profile cyber attacks were revealed – Whole Foods and Sonic Corp. Retail and restaurant pain from these attacks is just the latest in a growing number of reminders that cybersecurity spending will continue to be on the upswing as hackers get more creative and we continue to move deeper into not only our Connected Society but also Cashless Consumption themes.

Whole Foods Market — which was recently acquired by tech giant Amazon (AMZN) — said Thursday that hackers were able to gain access to credit card information for customers who made purchases at some of its in-store taprooms and restaurants. The tap rooms and restaurants use different payment systems than Whole Foods check-out counters, the company said.

“Amazon.com systems do not connect to these systems,” the company clarified in a press release.Amazon did not return a request for comment.”

When Whole Foods Market learned of this, the company launched an investigation, obtained the help of a leading cyber security forensics firm, contacted law enforcement, and is taking appropriate measures to address the issue,” the company said. Whole Foods says it plans to provide updates throughout the investigation.

Hackers targeted “point of sale systems” — or the machines where customers swipe or insert their cards — in order to steal the data, according to the press release.

Sound familiar? The news comes just one day after reports that Sonic (SONC), the drive-in restaurant chain, suffered a strikingly similar problem.KrebsOnSecurity, a notable cybersecurity blog, had identified a potential breach at some Sonic restaurants that was likely executed the same way Whole Foods says it was hacked — remotely via point of sale systems.

Source: Whole Foods hit by hackers – Sep. 28, 2017

$100 Billion in Online Grocery Sales by 2025 Raises Competitive and Logistics Questions

$100 Billion in Online Grocery Sales by 2025 Raises Competitive and Logistics Questions

Each month it seems we get more data points that confirm the accelerating shift toward digital shopping. As we noted in a recent post,  non-store sales accounted for 19 percent of holiday shopping in 2016 vs. 17% in 2015, but the shift is moving way past holiday shopping. Amazon is moving into fashion, groceries and other verticals as it continues to collapse its time to customer. We’ve seen continued strength in what Nike and Under Armour call Direct to Consumer, and we suspect Kroger and Whole Foods are likely to see the way the tailwinds in grocery are blowing.

One of the lingering questions is how will all of these goods get to those who ordered them? United Parcel Service? FedEx? The US Post Office? Uber? Lyft or proprietary delivery services? Drones? Odds are there will be a partnering strategy as we doubt each retailer will want to develop their own national hub and spoke consumer facing logistics system.

While online sales make up a small fraction of the total market in the U.S., the market share is growing quickly. A new study from the Food Marketing Institute and Nielsen projects online grocery sales in the U.S. could grow tremendously in the next decade.By 2025, the report suggests that American consumers could be spending upwards of $100 billion on online grocery purchases, comprising some 20 percent of the total market share.

Source: Grocery Tracker: $100B By 2025 | PYMNTS.com

Going after Amazon, Wal-Mart to test grocery delivery with Uber and Lyft 

Going after Amazon, Wal-Mart to test grocery delivery with Uber and Lyft 

As we wade deeper into the Connected Society, the largest US grocer better known as Wal-Mart teams with Asset-Lite companies Uber and Lyft to combat Amazon’s Prime Fresh grocery delivery. How long until Kroger, Whole Foods and the like get into the game? Perhaps its more than the mall that might be dead?

Wal-Mart Stores Inc will partner with ride hailing services Uber and Lyft to trial online grocery deliveries, as it looks to speed up shipment times and better compete with rivals like Amazon.com Inc

Online groceries are a $10.9 billion industry in the United States, and the market is expected to grow 9.6 percent annually through 2019, according to a December report by market research firm IbisWorld.

Source: Wal-Mart to test grocery delivery with Uber, Lyft | Reuters