Sounds + Food 'n' Retail

Disjointed, because I don't have the time or energy to write a beautiful essay about empowerment—I'm not even 100% certain what it means yet. And in a way, by writing about 'empowerment,' I'm breaking the first rule, which is "Don't speak about empowerment." Or at least it seems that way. Currently, there's around 505,000 articles online about the term, which qualifies it as a hype and as such something that has already been discussed too much. But also, empowerment is basically about trust, a behaviour, and how can you talk about a behaviour, you just behave.

I think I first came across the concept, without even using that term. A few years ago, I read a book on ants, called "Emergence." It was a great book, I thought, about how ants at every level exchange signals, in the shape of pheromones, to indicate what they were doing and whether they needed help. A completely decentralised organisation, and the only thing the queen needed to do was produce babies, which, equivalent in business-talk, is, I guess, take care of human resources. I was so excited about it, that it became a research proposal for my master-thesis in strategic management, and was very quickly rejected, as I guess I hadn't related it well to strategy.

I again came across the concept last week, after reading an interview with the then-CEO, Dennis Bakke, and the then-chairman, Roger Sant, of AES, a power-company, which was, at least at the time of the interview (1998), very big on empowerment. And it seemed to work pretty well for them, if you look at their share-price, it rose pretty steadily up to 1998, and even more up to ca. 2001. Though, it hasn't been doing quite as well these last few years.

Reading the interview, I got the impression that empowerment is a religion, which in itself is hard to quantify into a set of rules. Essentially, at AES, it was (or is, I don't know) a system of open exchange flows; people could evaluate each other's performance, investment-decisions were decentralised and crowd-sourced, job-rotation was common, and micro-teams of ca. 10 people, focussed on different projects and tasks, were spread all around the organisation. And that seemed to work pretty well.

But there were also some downsides, such as that the company didn't work well with other companies—rather, it preferred a contractual relationship—and there were constant pressure to revert back to the traditional top-down model, from the public, share-holders, even employees. Essentially, every employee at AES becomes a kind of mini-CEO, which is clearly not something everyone is conformable with.

And the question is, and I haven't figure that out 100% yet, is how you come from that top-down view of human "resources," to a decentralised ant-like model? The key-word, which is equally hyped but seems to apply, is "delegation"—i.e. shifting executive responsibilities out to a team.

I think the problem of this is quite well spelled out in a recent interview with Brad Bird from Pixar, who was at one point confronted with a team that was demoralised. The former director had taken their work and evaluated it in private, giving written comments to individuals, not giving them a chance to give any input. And in order to turn that team around, he had stand in front of them for two months, evaluating the work, in public, and encouraging to take part, through questions. Two months, it took to go from the traditional model to one of empowerment, and just for that team.

The good news is that for start-ups, this is pretty much the way it should be from day 1. The bad news is that for big companies, or as soon as a start-ups grows bigger, the dissonance between people becomes larger and larger. And you have to—if you want to, at least—find ways to decrease that gap, probably most easily achieved through team-building after team-building exercise.

Anyway, not much more to say about this for now, but empowerment is cool, let's leave it at that.

Ah yeah, I forgot! I liked these interview questions, which were typical of an AES job-interview at that time, and made me think about my own opinion on empowerment:

• Should everyone be treated equally? Explain.


• What do you do when something needs to be done and no procedure exists?


• What self-improvement-efforts are you making?


• Recall a time when people around you weren't being entirely honest. What did you do?


• What does "fair" mean to you? How important is fairness?


• For what have you been counselled about the most?


• What is the most difficult situation you have faced? What did you feel? How did you react?


• Describe two important achievements.


• Tell me about a time when a decision was needed and no supervisor was available.


• What kind of rewards are most satisfying to you?


• What does "fun on the job" mean to you?

I guess, this suggests that part of the answer to my question lies in an organisation's hiring practices.

The picture is of course of Che Guevara, who wasn't an entirely nice guy, but does stand for this whole "power to the people" movement.

The world of business, I think, has a certain illogical—the "human element"—shell around it, but centres around the concept of supply and demand. How you create a business where demand is high, how to you make sure that you have sufficient supply and/or not too much supply. You can see this play out in a number of places, e.g. on the web you have scaling issues, when your service proves to popular (e.g. Twitter), or you have the case of the million+ blogs that are collecting dust, because no-one ever reads them, or because the blogger was unable to gather enough interesting supply.

In restaurants, or food-places, you also see this play out. A couple of months ago, I was going to write about take-out, how some businesses embrace and others avoid it, and why. I think the reason is, at least in part, to control supply. If you control supply, then you can focus on quality and charge a higher price. You also become an artist/creator, rather than a factory.

How do you limit supply? Two ways, I think. Mainly it's the physical space; by limiting the number of seats in your venue, you ensure that a certain quota is set (of course, the question is also whether that quota is met, which comes from quality inspiring demand). By investing in quality-ingredients, you not only limit your budget, but also your production-capacity, and it forces you to limit supply. That's a little vague, I know, I haven't worked it out 100%.

The other way, is to have an increased level of supply. How do take-out and fast-food places do it? By standardising as much as possible. Whether it's the ingredients, which are mainly starch-based (burgers, pizza, noodles, etc.) and cheap, the production-facility (often just an oven, a grill, or a big wok), or a standardised customer-space (from seats stapled to the floor, to waiting-lines, to a website/phone nr.). All of which enables you to deliver mass quickly.

I was thinking about this today after watching "Iron Man," which is one big Burger King (and US-army) commercial, and getting a cheese burger afterwards. Burger King was packed and, ironically, slow. The "waiting in line" method doesn't seem to work that well when you have 50+ people waiting, and a limited space behind the counter to deliver burgers and stuff. People on both sides were bumping into each other constantly, and I actually had to wait over 5 mins, even though I was second in line.

On some level, I like to think that technology can solve a little bit of this problem. If you look at Zara and H&M, which I wrote about last week, both are very advanced in this area, in order to optimise and speed up their production, logistics, and merchandising. Of course, that's on a back-office level, and that's not the same as the front-office, where customers interact with a business. No one wants to be confronted with a screen to do the ordering, but sometimes I wonder if people wouldn't be happier just pressing some buttons in a fast food joint, rather than waiting in line. Of course that would mean more seats, as more people would sit down, and more staff, as someone will have to bring that food to the table.

In the end, it probably comes down to experimentation and constant improvement. That said, apart from the computers that cashiers operate, and quicker food-preparation, not much has changed in the last 50 years for the people doing the actual eating.

The picture is courtesy of lightningspeed.net.

Take a look at this quote, which I posted a few days ago:

"There should be a rule: before helping the environment in one market, we should be required to think through the impacts on other markets." (source: Freakonomics blog).

Or, to put it differently, every action has a (sometimes equal) reaction (I think the traditional phrasing ignores the human element). The idea that everything is interconnected is both fun to right-brained generalists like me (not a compliment), and scary at the same time. The global economy is very complex and, I would say, impossible to regulate.

There's a couple of things going on the world, which I'm sure everyone is aware of. There's a number of wars, there's the weakened dollar, there's some kind of housing-related recession going on, there's a shortage of oil, our planet is perceived as suffering and currently being saved (I hope), there's India and China, the rise of the Anglo-Saxon system, etc. etc.

And some of the biggest problems facing the food-industry (depending where you are in the chain), are rising food-prices, which relates to that oil-shortage (both in terms of pricing, but also because of alternative fuels using farm-products), the rise of India and China, and some other factors; and the costs of keeping green, which has largely been inspired by companies like Wal-Mart, but also by the (exaggerated) need for global diversity by customers (which the food-industry is also partially to blame for).

The solutions vary, and are, so far, very defensive in their nature. For the cost of going green, most pollution comes from transport and the solution is to either use the most eco-friendly way to go: on land, by train, across water, by ship; or to go local—which companies like Marqt seem to focus on, but which also comes with the pitfall of seasonal shortage.

For rising food-prices, again one solution is to go local, to save on transport and have some control over how farmers work, and be able to charge higher prices to the rising local-conscious consumer. But a bigger solution is for more food-production to happen (much of it currently goes to India & China, or to biofuels), and possibly from smaller farmers. The problem here is that it will take time (some estimate decades) for smaller farmers to get ready.

Both are definitely big picture-problems, and will take time to solve. One thing, I'm personally looking at, are micro-lending sites like Kiva.org, which put you into contact with local farmers, allowing you to help them out in your own way. From a Venture Voice interview with one of the founders, I understand that some of these investments happen within the context of a community, where each member keeps watch over the other's use and repayment of the funds, in order to ensure a good outcome, and so loans will continue to come in. But, while I think it's well worth the effort, this is still a small-picture solution to a much larger problem.

The way it looks right now, the solutions have to be planned in the long-term and on a large scale. There is definitely space in the farming-segment for more production to happen. In the mean time, food-prices will continue rise, as will the price of educating consumers to make more responsible choices. I like Tesco's approach in labelling the origins of their food and allowing people to make more carbon-friendly (locally focussed) decisions. But that doesn't solve the problem for farmers in remote areas of course.

Sigh, if you just got a headache, I sympathise, as I just got one too.

Further reading:

• NYTimes: Environmental Cost of Shipping Groceries Around the World
• Economist: The new face of hunger
• Buzzfeed: Food Hoarding

The picture is courtesy of ABC News.

I've included just the top-25 and annotated their focus. What's interesting, but not surprising, is that the majority of companies in that list are not independent horeca-orientated, apart from two: Hennie van der Most and Sjoerd Kooistra, both Dutch horeca-entrepreneurs.

The majority is hotel-chains, though the top-10 is quite diverse; a number of convenience-(fast)food places, resorts, as well as retailers. Interesting that both Ikea and Hema are on that list. Hema, as far as I know, has not been on the horeca-market for long (no revenue reported in 2006), but is already reaping significant successes. Probably my favourite retailer in the Netherlands, btw. Ikea, as I reported before, has been in the restaurant-business since 1971.



You can see the complete top-100 at Misset Horeca.

Read it on Tech IT Easy!

According to Distrifood.nl (Dutch) the " man's cola" showed a nice profit this last year, making it the top new introduction to a brand in 2007.


(Source picture: Elsevier.nl (Dutch))

I only point this out, since Coke Zero is one of the first food-related topics I wrote about on Tech IT Easy; a, fairly clear, signal that it was time to "spin-off" to this blog.

I just discovered a new podcast called "Big Ideas" (iTunes-link), a series of lectures on anything from the impact of urbanisation on musical tastes, to designing menus for restaurants. Oh, and it's Canadian. Not that that's bad, but some parts of the lecture covered local conditions.

John Schneeberger starts his lecture (dated March 1, 2008) off with the basics of menu-design, namely that they should reflect three things:

• What you stand for? Aka. what kind of food do you like to work with?
• What demographics are you targeting? Income, religious issues, etc.
• What are the current trends? And are they for real or just a fad?

Generally, when running a restaurant, you have to understand three things:

• Customer-decisions are always a trade-off between price and quality
• Traditionally, dishes consist of three components: protein, starch, and vegetables.
• What we understand as taste, actually comes from three sources: fat, salt, and sugar.

Any more "avant-garde" food-entrepreneur will have to face these three as a challenge at some point.

Schneeberger discussed three booming trends, vegetarianism, organic food, and local produce, and mentioned a number of challenges related to these.

Vegetarian cooking
The thing to understand about this, is that it's generally cheaper. Schneeberger mentioned a 1:10 ratio when you compare the cost of producing vegetables to the cost of growing a cow. And while it's a booming trend, the industry, somewhat mis-guidedly, still often focusses on trying to replicate the taste of meat, which is impossible (think veggie-burgers, etc.).

Instead, they should be thinking about nutritional value— vegetarian food has been correlated with lower health-problems and is for that reason often recommended by doctors. The problem with these types of diets is of course that they are low in those qualities we would traditionally associate with taste: fat, salt, and sugar.

To create dishes that people actually enjoy, restaurants have to look globally, e.g. Asia, where more exotic vegetable components can bring some needed flavour to these dishes. I think he mentioned seaweed, but also stinky tofu (see pic), which is a type of fermented tofu and one of the few ways to naturally bring flavour to that type of protein.

The implication is that vegetarian food requires a significant amount of specialisation and is often hard to combine with meat-cooking.

Another complication arises from vegan (no dairy, honey, animal-derived products) versus lacto-ovo (incl. dairy, honey, animal-derived) cooking. The first makes it very hard to create a (traditionally) tasty dish. The second, lacto-ovo, allows for more flexibility, through the use of ingredients like eggs, which not only provide extra protein, but also bring a lot of flexibility to the kitchen. You can, for instance, make foam out if it, which would enable the creation of deserts & soups, etc.

Organic cooking
First of all (and I'm not sure if this is just restricted to Canada), an organic food label refers to the production method, not necessarily the quality and taste. Since organic food is more expensive, and taste is not guaranteed, you have to wonder if your clientele is willing to pay extra for that service (remember the trade-off between price & quality!).

The big selling-point here is the information about the product. People like to know how their food was produced; it has a certain value to know that there are no chemicals or genetically modified components in what you are eating. But again, that must be a value that is clearly advertised and which may not be important to every type of demographic.

Local produce
The advantage for the restaurant is that they can form better relationships with their suppliers, it's also cleaner in terms of carbon footprint (less transport), and it also has some marketing value to a certain demographic.

The disadvantage is that supply cannot be guaranteed during all seasons. Schneeberger mentioned something called a "100 mile diet" for instance, but restaurants catering to that need will probably have problems in the winter.

Thoughts
Overall, a pretty insightful lecture of the more exotic (and trendy) type of cooking and its trade-offs.

These types of specialisation are still pretty niche, require significant resources in terms of tools, know-how, and supplier-relations. But, if executed well, a niche can be extremely profitable.

I thought that it was interesting that all the traditional means of cooking, the ingredients and the taste-makers, were pretty incompatible with these newer trends. As such, you are essentially climbing up a hill, trying to educate the mass-market. At the same time, good execution, together with differentiation from the norm, seems like a formula for success.

Just a short tweet.

I'm currently reading a Dutch book on the 2003 crisis at Ahold, but which is actually a historical account of how the corporation came to be. A couple of things I found interesting:

• Ahold actually stands for AH (Albert Heijn) Holdings


• We all know that things are cyclical, but it was interesting to read how a recession and high oil prices were a challenge that Ahold had to face in the 60s-70s, and how they managed to survive.


• In order to inspire Dutch people to shop more, they introduced a financing scheme for fridges, which people couldn't afford at that time. General Motors did a similar thing to help people afford their cars; seems like an interesting way to "upgrade" an economy.


• The fear of a socialist government drove Albert Heijn to look outwards and form Ahold (similar to why IKEA decided to globalise also).


• One of the consequences of politics at that time was the board of directors, meant to provide impartial guidance and represent the workers.


• They made extensive use of consultancies (often McKinsey) whenever they decided on a strategic trajectory.


• One of the directors was a big fan of Harvard Business Review :)


• They use the US as a source of knowledge on how to design their supermarkets. Later on, moving to the US was also seen as a way to increase that learning, as well as a new revenue-source.


• When AH moved to the US, they also brought their own ideas, like, eh, advertising (a terrible, terrible idea).

That's it for now! I'll go into greater detail at a later date.

I took this title from a report on the future of Dutch supermarkets (English pdf). It identifies a number challenges to come, one of which is "stomach share," which is apparently a big deal because of the following three factors:

• Population decline: which translates into less consumers buying food
• Increased longevity: and older people have a lower caloric intake
• Increased awareness of health-issues: which also translates to a lower caloric intake.

The market is shrinking, people are spending less of their income on food, which will have have consequences on the channel (supermarket), the sales concept, and the value chain. And it will affect those players negatively that cannot leverage these four factors for optimum positioning.



What the authors are seeing is that players from the bottom of the market (the discounters) are moving upwards, by broadening their assortment of goods, and players from the top of the market (luxury-stores) are moving downwards, by improving their prices. A number of underlying things are going on here: luxury-stores can become cheaper by improving the efficiency of their stores and sourcing cheaper brands. And discounters can increase their offering through their relationship with suppliers.

Following HBS-quote, from an article entitled "Finding success in the middle of the market", sheds some light how Tesco does it:

A company controls midfield by fielding a complete product line that includes backs and forwards. In its supermarkets, Tesco, the successful UK retailer, offers consumers three options—good, better and best—in most high turnover product categories. In addition, Tesco doesn't just sell groceries through one-size-fits-all supermarkets. Recognizing the need to shape as well as respond to an increasingly segmented market, Tesco reaches its consumers through at least seven different store formats, from convenient Tesco Express outlets at one end of the spectrum to full assortment hypermarkets at the other. But, within all its stores, Tesco implements the same merchandising principles: Better, Simpler, Cheaper.

Can you guess who the loser is yet? Well, according to both the report and much data on the net, the losers are the new, innovative concepts, that may offer certain values to consumers on an ethical or health level, but are not able to reap the same advantages as more established players are.

That is also the answer why so many organic companies are being bought up by fmcg-companies. There's an interesting overview here; but if you want to follow one in real-time, check out this Inc. magazine blog run by Honest Tea, which has recently given away 40% of their company to Coca-Cola.

Of course that is only part of the answer. Consumers are not just focussed on price. And, while consumer-awareness of the global situation and their own health is clearly growing, that's not the whole answer either. People's lives are becoming ever more complex and convenience is a big selling point these days.

It's those companies that can combine a high level of consumer-responsiveness, together with assortment and price, that will capture the hearts of consumers. But I guess what is out, is the solo single-product-serving player in the market, purely focussed on softer advantages like "ethics," and forgetting that consumers still(!) have limited disposable income for their food-expenses, as well a limited time to engage in these activities.

The reason I like Star Trek, most sci-fi in fact, is because of the space-opera aspect. You don't just tell a story, you design a universe around it. I've been a fan of the show, ever since the age of 10 when I got to watch TV at home. In some ways, sure, the time spent watching the show impoverished my life by taking me away from other endeavours, in other ways, it enriched it by contributing to my ability to dream.

As I grew older, I started paying much more attention to the story-telling aspects of the franchise. For instance, did you know that until the second season of Star Trek, the next generation, the writers didn't create a place for the crew to relax? It was only then that the makers came up with the concept of Ten Forward, hosted by the infamous Guinan (see pic). Later, in its spin-offs, Deep Space Nine and Voyager, we also saw a big role being played by the "lounge", hosted by Quark and Neelix respectively.

It was felt that by introducing this aspect into the show, a third place, it allowed the characters to show a different side of their lives, necessary if you want to teach a complete philosophy about society, as Gene Roddenberry was in fact doing. And of course, it spawned plenty of dramatic stories, that would otherwise never have happened. It allowed for romance, friendship, and conflict to happen, for aliens to meet and interact with one another.

What's interesting about the franchise that each series had a different archetype, which also affected the room for "drama." You could see it as both an evolution and devolution of a story. Star Trek, the original series, was the raw outline of Roddenberry's philosophy about the future of society. The next generation was much more developed and allowed for deeper interpersonal relationships. Deep Space Nine was again an evolutionary step, and much of the stories centred around "life" on the station.

Both Voyager and Enterprise represented a devolution. Voyager introduced the "morale officer", in my opinion, an engineered effort to bring a certain warmth to the story. But it was much less about teaching philosophy, as it was about survival. It showed that Roddenberry's universe was in fact small and could break apart at the edges. But it was still a good story.

Enterprise represents a return to those raw ideas. Perhaps it was felt that the franchise could cover no more new ground, and that a new philosophy had to be designed. It was also a story of survival and the raw pioneering spirit, shown in part in Voyager. But it felt like a military mission, there was little room to form complete characters. Instead we were presented with deep dramas, echoing the 9/11 events, which turned the characters into one-dimensional creatures, much perhaps the way the news depicts the main characters involved in the post-9/11 era.

To me, at least, Star Trek is a good analogy for certain principles in life. That it is not enough to search, but also to build. That friendships and societies are built, not only from the hard work they require, but from the breaks we take to reflect on our actions, and the places that are engineered to cater for that need.

Food for thought.

Marqt is a market for farmers, recently launched in Amsterdam by Quirijn Bolle en Meike Beeren (both ex-Ahold). Can't really sum it up much more than that.

It focusses on two opportunities: from the supply-side, many farmers want to sell their products, but are unable to because of the power-play from regular retailers and/or at relatively low profit-margins. Last year, when I briefly looked at the organic boom, I already thought that there is an opportunity here, for farmers to become retailers themselves.

This is made possible by the other part of this equation, an elevated demand by customers for natural and ethical produce, and, to a lesser degree, local produce.

Bolle and Beeren rightly identified an absence of identity in food-retailers, an absence of accountability for the product-decisions they make. But they also identified a need by consumers for quality-guarantees.

Because you have to wonder, how is Marqt different from the regular outdoor-market that exists in every city? Well, here's one difference, and I'll try to give an example. 'Tis the season of mangoes, and I'm hooked. I've been buying these babies at €1 a piece at my supermarket, but stumbled across some great deals at the local market: €2.50 for a box of 8! The only problem: about 6 of these were either unripe or overripe. And who do I complain to? One of the 100s of vendors on the market, whose name or brand I don't even remember?

From my understanding (I don't live in Amsterdam), Marqt-products are more expensive than those of local markets, about on par with regular supermarket-foods. They work with partners that are able to supply in greater numbers, offer a quality-guarantee, and, very interesting, train Marqt's staff to understand and explain how products work.

Their added value is that they can offer suppliers higher margins, and consumers a richer shopping-experience. And from what I hear, though I have no numbers, the store is doing reasonably well.

Two other interesting facets: Marqt houses individual suppliers' stores. So you have Store X for dairy, store Y for meat, and store Z for bread. Marqt provides the space, the staff, the marketing, and collects a percentage of the profits.

Also interesting: the store doesn't accept cash. It's progressive, I agree, but also great marketing-value, sure to raise an eyebrow or 1000. And it saves money on the back-end, though I hope they get rid of the €0.50 transaction-fee.

I think it's a great idea, and hope the store continues to do well. Gives me hope, both in terms of opportunities for retail-entrepreneurship, and entrepreneurship in the Netherlands in general, which (in my opinion) could use a boost.

Witness the following. A bar that comes in various flavours: chocolate chip, dark "luxury" chocolate etc. Yumm! It's cheap, costs around $1.50 per bar in the local drugstore, currently. And it contains 32 grams of protein. The perfect post-workout snack, it seems.



The only problem? The body doesn't digest it well at all. There are times when it sits in my stomach like lead, and other times, when my body can't wait to get rid of it. Empirically tested, two out of two times, that is what happened to me. Just last night, I woke up at 3 a.m. with a stomach-ache because of that damn bar.

Are snacks doomed to be unhealthy?
Back when I was a vegetarian for a brief two years, the one thing I missed was to have a snack that did not contain either an overdose of sugar, of fat, or of bread. With the exception of perhaps a nut-bar, a fresh juice, or chewing gum, those are pretty much your choices, walking down a street:

• A chocolate-bar: high in fat & sugar
• A burger, sandwich, or a pizza-slice: high in fat, starch, and limited protein
• Fries or chips: high in starch and fat
• A carbonated drink: high in sugar (excl. the light versions) and extremely bad for your teeth

You'll perhaps notice one ingredient to be fairly absent, that of protein. I thought that I had found the solution through Met-RX. Unfortunately, that too comes with its disadvantages, forcing me to keep looking.

A new era?
Interestingly enough, due to external pressures, I hear that certain supermarkets are changing the layout of their stores, removing snacks and junk-items from the register, and replacing them with healthy options like fruit. Equally interesting, (forgot where I read this) they are expecting a multi-million euro loss because of that policy.

Certain tricks do seem to work in raising those profit-margins. While a kilo of regular apples currently costs around the €1.50/kilo mark, pre-peeling and -cutting those apples, raises that price to ca. €8/kilo. Ka-ching!

The argument for mass-production is that it enables innovations to become cheaper and hence raises the general quality of life of consumers. The argument against mass-production is a more controversial one: that it destroys the unique quality of, let's call it, art.

Starbucks is a very good example of those principles. It brought a higher standard of coffee to the American masses, who, according to Howard Schultz's Starbucks biography, had long been oppressed by low-quality coffee from retailers and coffeeshops alike. At the same time, as the recent crisis at Starbucks illustrates, it has reached a saturation-point: it has brought Starbucks-outlets to every corner in the US, as well as spawned a whole army of competitors, and its brand has become diluted. It has become a commodity.

Back to their roots?
The re-enstatement of Howard Schultz as CEO is a signal, that the business has lost some of its original spirit and is in need of a guiding light. A letter that is rumoured (!) to be written by Schultz confirms that Starbucks will be focussing on re-introducing that original spirit, as hard as that will prove to be. There's only so much that you can change, after your company has reached a certain size. It would, at this point, be like saying that McDonalds is planning to become your corner-restaurant where everybody knows your name and favourite food.

The innovative angle
A friend of mine made me aware of a new coffee-brewing machine on the market, called Clover, which promises to deliver a higher quality coffee to consumers, though also at a higher price. According to Bruce Milletto, a retail consultant to the coffee industry, "a typical American café spends around $50,000 on equipment, about one-quarter of which goes on an espresso machine. At $11,000, a Clover costs the same again." Thus the investment-proposition is not an attractive one to the average cash-strapped café, who would have to spend that kind of money and charge an expected $6 per cup to recuperate that cost.

Following the rules of mass-production, Starbucks + Clover makes for a match made in heaven, and so it is: Starbucks has in fact acquired Coffee Equipment Company, the four-year-old Seattle-based maker of the Clover coffee brewing machine, for an undisclosed sum.

Considering that Starbucks has long been threatened by the commoditisation of coffee in the US, through the birth of literarily 1000s of new franchisers who, on the surface, provide the same value-proposal, though perhaps at a lower quality and price, it makes sense to acquire one piece of machinery that makes a bit of difference in the eyes of certain consumers. Considering the recent partnership with Apple, I believe that these consumers share a similar taste and price-insensitivity, and since that segment appears to be growing, I believe that Starbucks made the right call. They appeal to the type of customer that will pay $6 for a cup, and with their economies of scale, that price is sure to drop to a slightly more acceptable level of (I guess) ca. $5.

The cultural angle
There is another side to this. The USA is not the world, and while Starbucks has been thriving over there, the Europeans (I can't speak for other continents) have enjoyed a coffee-culture for quite some time. For people like my parents, who are respectively citizens from Southern- and Western-Europe, and avid café-visitors, they would not even consider going to the Starbucks in the centre of their German hometown, because there are plenty of alternatives with more atmosphere, more identity. To them, Starbucks is like a McDonalds, a franchise that in fact shares many cultural values—bringing a good to the masses—and does so by building ecosystems of services—from music-retail to the happy-meal—to deepen the (commercial) relationships with its customers.

Consciously and subconsciously, I'm a sympathiser of "unique" café-outlets. I like spending time in them, sometimes hours at a time, read my newspaper in peace, and enjoy a reasonably good coffee at slightly less than $2 a cup. I don't actually care about spending twice that for a coffee, but all the Starbucks's I've been too (exclusively in Germany and the UK, I must admit), have been so devoid of atmosphere that I don't really spend more than a few minutes there, 30 max. The only thing that does attract me about them and similar stores, is that I can grab a cup-to-go, mostly in the summer, and enjoy it out in the sun.

As a citizen of Europe, I think I am a fan of the heritage of the traditional café and don't really want it to go. If that makes me "backwards" or conservative, I am sorry. I want the chance to enjoy a Turkish coffee in Brussels, an Italian coffee in Cologne, or simply a Dutch one here in Rotterdam. I enjoy knowing the history of a pub that has existed for over a 100 years in Antwerp, and the same in Maastricht, or Amsterdam. I want there to be a diversity, and most important, I want that choice to be mine. I don't want there to be a cloned coffeeshop on every corner.

One of the saddest things I heard, while I was in Belgrade last year, was the exactly such a historical café was replaced by a chain (and the coffee stunk too); and I was equally sad to see that nearly all of the traditional retailers I remember from before the war had been replaced by a cloned shopping-centre that would've made any Western city proud: from H&M to Footlocker.

Opponent: Starbucks?
Globalisation is a situation we must all deal with. Its oldest proponents are the FMCG-companies, who are focussed on producing the same good for millions of people. The question is whether coffeeshops should embrace the FMCG-principles like McDonalds and Starbucks clearly have.

Starbucks is a formidable opponent: it is both a roaster, a retailer, and an FMCG-producer. It is strong in the US, and has a significant presence in the rest of the world. It will not go away, And not all believe that their presence is all that disruptive. I don't either, as long as Starbucks knows its limits. There are parts of the world that do not share the same qualities as US-towns. Some cities have long histories and places of heritage that should perhaps not be housing a McDonalds or Starbucks.

In a way cafés are stuck. They need the kind of innovation that Clover brings, but they are not in a position to buy their way in. If they did, they too would have to become mass-marketeers, in order to recuperate that cost. Instead they need to focus on what they do best, and coffee-machine makers to do the same and just license their technology. And whether the latter is able or willing to do that is the question.

I'm not sure how much Clover was acquired for, no one is. And I'm not sure how far Starbucks is willing to go to ensure their qualitative and quantitative dominance of the market. Will they grab every new piece of technology that promises to introduce a higher quality of coffee to consumers, keep it for themselves, and leave the traditional cafés to differentiate themselves simply by their "culture"? Sheer business-principles dictate that they will.

Howard Schultz made me believe, in his book, that it was Starbucks' mission to bring better coffee to the world. Let's hope that a richer coffee does not come at the price of a blander world.

This piece is in fact incomplete. Optimally I should write up a list of actions for coffeeshops to take. However, I am not yet that familiar with all the business-issues facing these organisations and all of my suggestions would be targeted at growing in size and battling on similar terms as a national or global player. And I'm pretty sure that many would not be willing to do that. So I think I'll wait until I have a more objective grasp—from all angles—on the situation, before giving practical advice. Feel free to provide me with that objectivity through your comments.

I'm still "on a break," but stumbled across this interesting titbit from a book on warehousing-practices. If you don't like reading lists, too bad because it's interesting, but I've also summarised the key-points in the end.

China

• Low labour and land-cost, but high equipment costs, translate into large (e.g. 250,000 square feet), low warehouses like in the US, but often lacking even a forklift.
• Certain goods like consumer electronics, are of such high value, have a short life-cycle, and thus a lower inventory-cost, that expenditure in state-of-the-art technology is justified.
• Certain cost-saving practices, like removing the pallets from shipments in order to ship more goods, cause some inefficiencies other countries, like, eh, re-adding pallets.

East Asia

• A traditional focus on personal relationships and less on computational models, means there's a lack of data and opportunities for improving performance are not well-developed.
• The most active economic areas are separated by lots of water, which means lots of product conveyed by air (for high-value or time-sensitive products) or ship (for bulky items or commodities). The high costs associated with this, are incentives to consolidate freight.
• Therefore, more strong regional hubs, like in Hong-Kong and Singapore, are expected to emerge.

Europe

• High labour-costs and an inflexibility of the work force have lead European warehouses to be more advanced in terms of automation.
• A growing common market will also lead to more economies of scale in the future, leading to larger, centralised warehouses.

India

• Characterised by cheap labour and land-cost, but relatively expensive capital costs (machinery and the like) and an underdeveloped infrastructure (both physical & administrative).
• The markets being supplied are generally local and not very wealthy, which leads to the SKUs not being high cost and there being little incentive to increase efficiency through capital expenditure (IT).
• Global demand means that larger distribution centres are being built around large ports like Mumbai (Bombay). The lack of land there is leading to high prices, comparable to Singapore/Hong-Kong.

North America

• Characterised by a culture of mass-consumption and a uniformity of the market and distribution infrastructure, which translates into large centralised warehouses and accelerating rates of product flow.
• Warehouses are often situated in the countryside surrounding metropolitan areas, which is cheaper, while being well-connected.
• A good telecommunications-infrastructure enables better supply-chain co-ordination; Warehouse management systems are generally advanced, and the rich data leads to better tracking and performance.
• High labour-cost are off-set by using cheaper migration-workers

Singapore, Hong Kong, Japan

• Due to a lack of land and high labour-cost, warehouses tend to be built high.
• Elevators are one bottleneck, caused by this style of building, however a Singapore warehouse has found a solution to this: A multi-floor facility with no automation or elevators, but, instead, a spiral truck ramp so that trailers may be docked at any floor (see pic). This does claim more land area, which must be recovered from above, and doesn't work well if trucks have to shuttle between multiple floors.
• While both Singapore and Hong-Kong act as hubs, Singapore is much more international, receiving goods from manufacturers all over Asia and shipping it to other countries; Hong-Kong receives mainly Chinese goods. Also, for the latter, many of the goods come in via trains and trucks, while leaving by ship or flight, while for Singapore it comes and leaves via sea and air.

South and Central America

• Labor costs are low, though not as low as in China, and the nature of its local economy and customers does not justify high equipment expenditure.
• The only exception is Mexico, which can quickly ship products to the US and keep its inventory low, thus justifying state-of-the-art technology.

Final thoughts
Some general conclusions can be drawn.

• Labour costs are a factor when considering automation; automation is a factor when considering optimisation; optimisation is a worthwhile expenditure when dealing with high value goods with a high velocity.
• Cheap land seems a fundamental advantage, looking at the logistical nightmares that Singapore and other high-rise builders must be experiencing.
• Access by land will significantly decrease the cost of transport. Generally, a well-developed infrastructure means more access to wealthy markets and enables warehouses to store high-value/high velocity goods, which is good for them.

The book 'WAREHOUSE & DISTRIBUTION SCIENCE,' which is available as a free download, provides some incredibly detailed info on how to effectively set up warehouses and distribution chains. Well worth a glimpse, if not more.

These next few weeks, my posting-rhythm will slow down due to personal issues, sorry about that. It does however feed into this topic here.

Premise: A couple of things happened these last few days, which I think are noteworthy. The Zuckerberg-interview on SXSW got slaughtered by the twitter-crowd (though there's a human behind every trigger), and which is an example of a BAD interview. There's Steve Balmer, who came across as both human (sympathetic) and capable, an example of a GOOD interview. And there's John Battelle, who wrote two good posts on that every business is a media-business and every business should find a way to engage with its customers.

It's all about PR of course, and somehow some people got it into their head that social media—blogs, social networks, web-sms (my term for Twitter, Pounce, Jaiku,etc.)—is a good way to relate to the public. The problem, if I may call it that, is that these are two-way conversations between people that are essentially observers: users + media. And that, as the Zuckerberg-interview shows, when users + media get angry, they get ANGRY. Now, you could argue, bad publicity is still publicity, I just consider it disruptive.

Business, in my opinion, is two things: a machine that produces output, and engineers that seek to optimise the machine and increase its output. Arguably, user-feedback is useful for tweaking the machine to perform better, and optimally get more users to purchase its output. And outward PR (marketing) also means that more people are aware of your great machine and want the output. Ah, machine-analogies, gotta love them.

Just like the life-cycle-model of a product, which evolves from slow to strong growth, to maturity, and ultimately decline, our machine is very susceptible to tweaking at the early stages, can produce extra output, etc., but ultimately reaches a saturation-point. The same, I believe applies to user-feedback and marketing. The return on investment levels off after a while.

You have the PR, which is the interviews and other kinds of marketing, and there's the user-feedback, which should be restricted to the product-level. And, aside from the life-cycle-model, there is general a limit to the value of both. You don't want a mob disrupting your interviews, no matter how bad they go. You don't want a mob disrupting your business, period, unless you're developing something like a nuclear weapon.

What I'm essentially arguing against is that companies should be 100% social. They should be social enough in order to improve their products and let the people know about them. Should they engage in a two-way conversation? Only if it's directly product-related or your business is bad for the environment (arguably a government-issue), should you engage and customers should vote with their wallets. Note that I'm referring to business-PR here; individuals can blog about whatever they want, if you ask me.

There will always be the "backroom-talk," the social-media people who have opinions on anything, from using Plaxo-scripts to milk Facebook-data, to 17+ ways on how you should (not) run your start-up. And there will always be "Skynet"—the realm of the machines—which have to keep running because social media will not put that food on your table, the farmer will.

This somewhat-cynical article will NOT be mirror-posted on Tech IT Easy tomorrow

It's Sunday again, and I have a nice big collection of links today: on running a cheap yet effective start-up; on why brands exist; on creating happy places for yourself and employees; on the business of children; and finally on a whole load of neuroscience. The aesthetically pleasing picture of Marilyn links to a particularly disgusting image of a "healthy" burger—my initial choice of illustration. You have been warned.

Previous link-discussions can be found here.

Link 1: the obvious one - Seriously, unless you actually used this weekend to, eh, have a life, you'll have noticed the firestorm started by Jason Calicanis, continued with Duncan Riley, tempered by Jason Fried, and the final words of wisdom by Micheal Arrington. Crazy, how opinionated these entrepreneurs/bloggers are, right? Yeah, right. A good read if you're (thinking about) running your own business, with like lazy employees and expensive tables.

Link 2: A brief history of brands - well actually a blurb about a book. I like:

"Branding became necessary when large-scale economies started mass-producing commodities such as alcoholic drinks, cosmetics and textiles. Ancient societies not only imposed strict forms of quality control over these commodities, but as today they needed to convey value to the consumer. Wengrow finds that commodities in any complex, large society needs to pass through a "nexus of authenticity.""

Link 3: the architecture of happiness -

"There are three concepts central to the “yoga of the home”…. The first rule is to align your schedule with universal schedules by getting up and going to bed with the sun. “We try to keep lightweight and low furnishings in the north and east — to create an openness — so that we can draw in the healthy early morning sun,” says Cox. Heavier, taller furniture goes in the south and west. Second is bringing nature indoors — plants, natural fibers, no synthetics. “Vastu is the first intentionally green science,” Cox says. And last, vastu asks us to “celebrate who we are and what we love” by surrounding ourselves with things that have meaning. “When someone enters our living room and we’re not in the room yet, we want this guest to get a sense of who we are,” she says. “The room speaks of us.”"

I've been thinking about this topic and the general issue of creating happy places for a while. A worthwhile read is also Frank Addante, a serial entrepreneur, on choosing the office-space for his start-up: link 1 and 2.

Link 4: building a toy e-commerce store - since I linked to Lego last time this seemed appropriate. In all seriousness however, I think the subscription-model + children is a cash-cow; kids always want more stuff and have old stuff to get rid off. Applicable not just for toys, but clothing and furniture as well.

Link 5: Some neuroscientific stuff - ignorant shoppers are blissful, though information that stimulates the imagination still works (as do quality-labels as they allow you to charge a premium); body-language works for consumers, in other words an in-store-television-advert or one of those annoyingly friendly taster-people in supermarkets, should cause people to buy more food. A little bird tells me this applies more to the US than the French; 15% of women don't like perfume, which is interesting I think as I'm not a big fan either; and Art-adverts work, enough said. And yes, EurekAlert is my new favourite site.

When I started this blog as an experiment, I purposefully kept it vague, while maintaining a fairly clear industry-focus. However, taking a value-chain view of food & retail only gives you so much. It allows you to identify tensions and possible opportunities, but unless you want to be a consultant regarding value-chain issues or are the strategist within a business, it doesn't really bring you all that much.

Where the imagination really kicks in—and you need that to think of new business ideas—is when you start matching you— the individual or groups of individuals with a particular skill- and experience-set—with a particular opportunity that you can feel both passionate about, and confident that your skills & resources are sufficient to add value to it.

Blogging about FnR allowed me to look at segments in the industry, such as:

• farming
• supermarkets
• franchises
• online-retailers
• electronics retailers
• coffee-shops
• restaurants
• cinemas
• furniture-stores
• and fitness-studios

As well as product-areas, like:

• fast-moving consumer-goods
• coffee
• beer
• private labels
• organic food
• and media

And of course a lot of business-issues around it.

However, starting or working in a business is of course more than writing about it. It's the process of building up a vision, gathering up resources to execute it, and executing it. I was reminded of how powerful such a vision can be just last night when I was evaluating a business-idea and what it would take to execute it (I ended up dismissing it for now).

And of course, starting a business is not the same as running a business, the latter of which can be defined as a sustainable* process of making money (*: not in the environmentally-friendly sense of the word). So many stages to go still.

Will this have consequences for this blog? In the short-term, the next few months, probably not much. I'll still be looking at more industry-segments, product-areas, and business-issues. Ultimately though, I will have to focus on one particular industry-segment and one or a set of related product-areas. Of course, when that happens, I'll continue to share my thoughts here, as that is my not-so-secret way to build mindshare (insert: evil laugh).

Take care,
V.

Let's face it, even with nature knocking on our door, some accountant will still ask what this whole thing is going to cost. Science, facts, morality… it's not enough. I compare it to smoking; even though everyone knows smoking kills, it took pressure—social, governmental, commercial—for people to quit. And the same applies to businesses going green.

Without further ado, here's five pressures that make the business-case for companies to change.

1. Governmental pressure - let's ignore for a fact that government is the one keeping its finger on the pulse of scientific research, social, business, and technological trends. But what is hard to ignore is that the government is actively pushing businesses to change, either by punishing the wrong-doers, by subsidising clean practices and technologies, or by providing new infrastructures around these new rules, allowing for businesses to dispose of their waste in better ways and use alternative, cleaner energy-sources.

2. Consumer pressure - like with smoking, not all consumers have been following the new green "religion" quite as passionately. That said, there are the early adopters, the geeks, the pressure-groups, that are insisting on businesses changing their ways. And those businesses are themselves customers to their suppliers and are doing the same thing to them.

3. Business climate pressure - apart from the above, two things will strongly pressure businesses to change: costs and competition. The rising cost of fuel, electricity, and water, etc., as well as the cost of disposing their waste, is a good incentive to implement technologies that help conserve energy and produce less waste. Similarly, as competition will do the same, businesses are forced to respond.

4. Knowledge-carriers - with the amount of scientific research being produced everyday, it was only a matter of time before methodologies would be developed to help businesses become greener. Since this is still a specialised activity, both commercial parties (consultants) and governmental institutions are there to advise companies on how to change.

5. New technologies - new inventions are constantly being brought to the market, that help businesses conserve energy or get it from alternative sources. Think: technology to monitor and regulate energy-use, water-conserving toilets, more efficient lights, green roofs, etc.

Anything I missed?

In a way, you can't blame businesses for resisting. There have been lot's of change-initiatives these last decades—from ERP to joint ventures—which have produced questionable, if not disastrous results. For change to happen, it must be driven by strategy first, because doing business is like doing war. There is a high price for failure and no one will be congratulating the loser.

But what is certain, is that eventually there will be no more choice. Those that are slow to react will do so at the cost of an unsympathetic government, of the competition racing ahead, and of customers dropping their support.

This article is mirror-posted on tech IT easy, where there's also an interesting discussion going on. Why do people end up going green?

Time for those Sunday-links again. Today, I'll discuss the cocktail that is smell and how some things just don't mix; how green is not all it's cut out to be; a possible shift of power from retail to farming (or not); how lego came to be and where it is going; and how to sell me online shopping.

Previous link-discussions can be found here and my bookmarks here.

Link 1: Starbucks Admits Sensory Mistake - These are the kinds of stories that make me I like the NeuroscienceMarketing-blog. If you follow the science-section of the Economist, you'll know that neuroscience is a big deal anyway. In any case, this story is about how Starbucks designs atmosphere, largely influenced by smells. Apparently, smell of heating egg and cheese sandwiches doesn't mix well with the coffee aroma.

Link 2: False 'Green' Ads Draw Global Scrutiny - Two problems linked to green adverts these days, I think. One is that consumers are growing tired of it. And two is that, as this story shows, just because companies say they are, doesn't mean they are. I like the Norwegian approach to this. They ban green adverts by products that cause more problems, no matter how innovative they are (about hiding it).

Link 3: Farmers Wonder if Boom In Grain Prices Is a Bubble That food-prices are rising is an inescapable fact. But it also presents an interesting shift in the status quo. In the food-chain of the grocery-business, farmers are pretty much at the bottom. Now, even though their own costs are increasing also, they can charge more on top of it and decrease retailers' margins. Time will tell if this is something that will be acceptable for a long time. Certain signals very much suggest to me that farmers may be in the right position to cut out the middle-man and become retailers themselves.

Link 4: The Making of…a LEGO - I'm still a kid at heart, so I love anything to do with games and toys. My parents never bought me much lego as a child, which I regret as I hear it breeds geniuses. In essentially two pages, the article describes how lego came to be, what makes it so perfect, and what the company's strategy is. I was always impressed with the brand-extensions they did with the games, the robots, and the theme-park. A company to follow.

Link 5: Online shopping at Hema.nl - I've linked to this on twitter before, but it brought another smile to my face watching it again. Just when I think that online-shopping has no future, innovative uses of technology surprise me again.

One of the stories, I covered last week in my links, uncovered an interesting statistic. Only about 3% of retail sales in the US happens online. I don't think these stats are at all coincidental. While I see a bright future ahead for the online retail of media-products, I find that what the internet cannot provide, is the "closeness," that is sometimes needed for evaluating certain types of goods, like food and clothing. I have commented on this before, implicitly, with a post on the web as a third place, and about the lack of cohesion that Facebook provides.

At the same time, as The New Yorker story reports, what the internet has changed is how we shop; it is much easier to research and comparison-shop than it was before the internet-days. A survey by Accenture found that ca. 66% of those surveyed compared products online, and another study showed that the internet played a significant role with ca. 75% of electronics purchases.

IInnovate has an interesting podcast interview with Scott Dunlap, CEO of NearbyNow, which has come up with an interesting way to exploit the informational advantages of the internet and mash that with the qualities of physical shopping. Following short video shows how their service works:



Clearly technology has evolved a lot in the last few years, making this possible. NearbyNow works via the web and via mobile. I'm not sure if they are using any location-tracking & matching services, but certainly they are heading in that direction. On the retailers' side, there is plenty of technology that makes this possible also. Electronic inventory and point of sale systems allow both for the checking of stock-levels and for consumers to reserve items to be picked up and tried on at a later date.

One issue that entered my mind, is that of efficiency. The way NearbyNow operates is through malls in the US, most of which are, as I found out, owned by 6 major companies across the nation. US's scale-economies win again! In Europe, the situation appears a little different. Culturally, linguistically, technologically, and legally, it is a much more fragmented market, with far fewer malls also, and that may make it difficult for a unified service like this to operate as efficiently as it would in the US.

There is also the issue of too much transparency, which is worrying to some retailers, and addressed in the podcast-interview. But what does seem certain is that this is exactly the type of service that consumers value, and as such one that any consumer-centric business should encourage.

Will a service like this ever replace shopping in its entirety? No, I'm essentially betting my future that there are plenty of qualities *real* environments will continue to offer over virtual ones. But there is no reason, none at all, to try to integrate the good qualities that the web does possess—information at your fingertips—as elegantly and effectively as possible into those experiences.