Confidence, convenience and conversation

Confidence Whilst the balance of opinion was still for a positive outlook for 2019, the more significant news behind PwC’s recently published CEO Survey was a marked downgrade in confidence from last year. Most popular concerns were about over-regulation and policy uncertainty; however, there was a clear difference by region in grading the top concern. Notably, the top threat of US CEOs was cyber security. Common to all was a more internal mindset and a focus on operational efficiencies to drive growth as opposed to new market entry. A skills gap around data and innovation persists, whilst staffing costs were rising more than anticipated. These are intertwined factors. Talent scarcity is made more acute through a failure to create operational leverage through technology. The significant majority of CEOs surveyed stated a belief that the coming wave of artificial intelligence would be more impactful than the arrival of the internet. Whilst it is difficult to see change happen day-to-day, think back to before the internet existed, and the difference in how we now work and live. No emails, no Google Maps (no Google), no Wikipedia, no e-commerce, no social media, no apps, no web browsing, no Futures /Cut. More impactful than that.

 

Straight to Fridge There are both conveniences and inconveniences to shopping online relative to shopping in shops. It is convenient for instance to be able to shop once the shops are shut. It is also convenient to be able to reorder a shopping list without having to make the manual selections yourself. However, it is inconvenient to have to be at home during a delivery window. It is even more inconvenient to have your groceries spoil as they sit on your porch. It is these kinds of inconvenience that the big retailers have been trying to remove from their online channels. Walmart makes further ground this week with the announcement of a straight-to-fridge offer. The delivery driver is able to gain access to your home using smart access technology and the delivery is monitored using a wearable webcam, giving the home-owner some reassurance that that they aren’t getting up to mischief. This follows a similar innovation by Amazon a year ago in the form of Amazon Key. Walmart has also recently released another innovation in the form of its ‘Delivery Unlimited’ model. Under this model, customers can choose to pay a $98 annual subscription for unlimited home deliveries, in place of a one-off $9.95 fee. Annual subscriptions, a model now preferred in many businesses, allow the retailer to make investments in delivery infrastructure, whilst also creating customer loyalty and increased repurchasing likelihood.

 

Pod to shelf Last week Ocado announced that it will be making a push into vertical farming by taking a majority shareholding in Jones Foods. Vertical farming using stacks of hydroponics has been trailed for some time, but there has been considerable scepticism over its viability as more than a niche solution. Agricultural land is still very cheap relative to other land uses, and so the equation here is one of yield density and proximity to market. Obviously planting upwards creates density, but the associated cost also acts as an often-unreachable viability hurdle. Distance to market place might be a different matter. Ocado plans to develop farms either in or next to its existing distribution centres in a bid to create a competitive advantage around ‘freshness and sustainability’. This includes its proposed small format ‘Zoom’ centres which offer one-hour delivery. Many years ago, I worked for Birds Eye peas who promised ‘pod to frozen’ in 2.5 hours. Through collocating agriculture and distribution this might start to look very slow.

 

Concentric diversification Often innovation comes from the space just outside your industry. In search of new growth areas, businesses tend to diversify concentrically into products which touch the same customers that buy their primary product, often bringing with them a new perspective and expertise. In recent years IKEA, a furniture retailer, has shown an aptitude for innovation in housing delivery. Perhaps not such a leap from their current business, IKEA has recently announced a new line of robotic furniture, playing to the need to use space more effectively in micro-flats. More ambitiously though through their Space 10 Lab, they have launched a vision for a new communal housing model ‘The Urban Village Project’ in which conveniences and services (including food) are shared, and where residents ramp up ownership over time though a share purchase model. In similar fashion, I think that real estate owners (particularly those with large estates) have incredible potential to move concentrically into other industries, leveraging the fact that they control the funnel of space where people spend their time. The social media platforms have a clear idea about how to monetise virtual footfall. Why do we not see more of this in real estate?

 

Dog days This Friday marks two important events. Firstly, it is national ‘Bring Your Dog to Work Day’. In support of this event, the organisers cite studies claiming productivity benefits, reduced stress and greater job satisfaction associated with having four-legged friends in the workplace. The organisers acknowledge that this might not be suitable for all workplaces and offer advice such as bringing a bed. However, some large businesses like Amazon have up to 6,000 canine employees turning up to the office all year round. The second event is ‘Chat Day’ being promoted by several public transport operators across the UK. In this, operators such as West Coast Virgin will be offering ‘chat carriages’ for the day (presumably the opposite of a quiet coach), while Arriva are putting ‘conversation starter’ cards on their buses to encourage interaction. Sometimes you need to be careful what you wish for. As a commuter into Waterloo, I’m not sure that the passengers on South West Trains this morning would have been in the mood to chat, or that the conversation would be particularly polite. There is a common element to these two events. We talk about humans wanting to interact with each other as unquestioned truth. The reality might be, as confirmed by a survey last year, that people simply prefer to chat to animals than to fellow commuters.