Monthly Archives: September 2015

The hidden dark side of connected vehicles – Volkswagen’s electronic tinkering

The big bombshell news today on the IoT (internet of things) front was that Volkswagen was caught programming their diesel vehicles to behave better during emission testing. I guess that is much more sophisticated then when a car dealer would roll back the odometer on a used car! The fall out of this news was immediate. The company’s stock tumbled as much as 20%, seeing almost $17b of market value disappearing from Volkswagen AG. Unfortunately for the German automotive giant the pain is not about to end. The United States Environmental Protection Agency, warned that it could levy a fine as high as $18billion for the infractions. Ouch.

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This will be a severe blow to Volkswagen, but it will have some other repercussions as well.  A new reason for some to pooh pooh IoT. I recently wrote a blog post that called out some backlash we are seeing when it comes to connected things. While some may scoff and laugh at such connected items as cat water bowls, jars and socks, I would argue the business plans behind those are not as silly as one might think. Click here for my post. But the cause of that backlash is real. Over-hyped and overpriced connected objects for the sake of it, does not make sense. There has to be a business model associated with the connected item.

It is the same with the stories that come out about someone’s connected skate board being hacked. Yes there is the potential for mischievous acts being perpetrated. But remember that over a decade ago online banking and shopping also fell under the fear mongering – your accounts and credit cards are not safe!!!!! And yes…some breaches have occurred. But as I recall Jesse James and Billy the Kid robbed brick and mortar banks long before the internet. That created a lot of fear, yet people in modern society still having bank accounts…in brick and mortar banks as well as do plenty of on line banking and shopping.

Now I am sure we will hear fear mongering about the companies that are doing the connecting finding some way to “get away” with something. And from the looks of it Volkswagen is guilty of doing so. But this just means that regulators and governments will have to do a better job monitoring. This does not mean that a connected car is now a bad thing. With all new technologies there is a learning curve: for consumers, the creators of the technology, the oversight of the usage and the business models best served. We are only beginning to scratch the surface when it comes to IoT. There will be bumps and abuses of the technology, but there continues to be great promise. Let’s not let the worry mongering detract from the possible.

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Instacart at the edges of the retail IoT network with help from a humble device

The on demand retail economy is in full bloom. Companies from AirBnB, Washio, Favor, Shortcut to Lyft are all offering consumers a new retailing experience when it comes to services or procuring goods. These new business models are also pushing the edges of the retailing envelope – changing how retailers look at servicing the end customer. One shift that is taking place as well is how the physical stores are being leveraged. eCommerce giants such as Amazon and Alibaba began to drive the conversation around why have stores at all? With large logistic networks, strategically placed distribution centers and savvy order capture systems the need indexfor physical stores for customers to come and look at products and then purchase were a relic of the past. Not so fast. Stores are making a come back. As they should. The reality remains, that as a percentage of all retail, the dollars spent via online are still dwarfed by those spent in stores. For every $11 spent in retail, more than $10 of that sum is transacted within a physical store. However retailers are facing the challenge of how to leverage the physical stores in new ways.

An example of this is the services Instacart is offering. The basic premise for the service is to offer consumers the flexibility of having someone else do their grocery shopping and having the items delivered within a finite time. Instacart has partnerships with the likes of Whole Foods, Safeway and Costco. So the grocery store is where the inventory is being held, no carrying costs for Instacart. However, Instacart relies on their pickers as well as their mobile devices to ensure that orders are properly received and most importantly properly picked and packed. This is where problems arise for such a service. The service is similar to a warehouse pick and pack operation, but a warehouse is staffed by professional warehouse employees and is…well a warehouse! Whole Foods is not configured like your local distribution center. So how can you ensure the order is properly handled? This is where the promise of IoT comes into play.

While these grocers are not going to become fully IoT operational overnight – having sensors throughout store infrastructure (shelves, aisles, freezers, carts etc), on certain inventory as well as on other essential assets – the ground work is beginning, in large part driven by the services provided by Instacart. Instacart is really similar to a store within a store – or personal shoppers within stores. And with that they also need their own systems in place to manage their business. While they can lean on the mobile assets their pickers carry, they require a more robust and industrial strength solution. This is where they are working with Zebra Technologies to place printers within certain Whole Foods. Printers? You may look at this as a non-digital play, but on the contrary this is a perfect example of how IoT can start being infused into retail.

Retailers do not need to invest in snazzy new beacons, cameras, sensors, smart shelves or RFID but rather can look at items such as label printers as a foray into IoT. Zebra printers are being rolled out into Whole Foods where they are tied to the Zatar IoT platform. The Zatar platform is able to tie these printers into a greater IoT platform. Currently the system is handling the order processing for the pick and pack of groceries. Through simple printing and labeling, it is targeting a more efficient and proper order.

This is addressing a current need for the grocer and Instacart – making sure orders are error free. But think about how this could evolve. The printer is but one item that is becoming smarter. Instacart is able to place this smart, IoT enabled device, in the property of another entity and run their business within someone else’s store. As the printer becomes “smarter” for example adding camera technology, this innocuous looking device now becomes part of an IoT infrastructure within a grocer’s store. The platform that it is tied can now take on new IoT enabled devices – suddenly the network effect takes off.

The long-term impact of relationships between the likes of Instacart and Zebra is in the ability of companies like Zebra to begin to plant the seeds for connectivity, tied back to their platform, within these physical locations. The promise of IoT will not happen overnight, but will start on the foundation created by the infusion of connecting humble machines such as printers into a greater IoT network.

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IoT – don’t focus on the hype, keep the use cases in mind.

An interesting article came out end of August that looked at some “gadgets” that should have just stayed dumb. A good read that highlights some everyday items that probably should have stayed out of the IoT spot light. Click here for the article.

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But are we missing the bigger picture with IoT? I agree with Christopher Mims from the Wall Street Journal about the over smartening of banal items – plates, pans, drinking cup to name a few. Click here for the piece. Not every object in our every day lives need to be connected. However, as prices come down, use cases for some of these gadgets might become more appealing. Let’s look at some that @internetofshit called out:

  • The connected bottle of wine – yes tracking my $5 bottle of wine is a little silly. But think about the importance of track and trace for items such as your cough syrup or baby formula. Ensuring they have not been tampered with or counterfeited. How about monitoring perishables such dairy. From a distributor stand point, being able to track and trace a bottle of Coke or Pepsi could have long reaching impacts on the supply chain, being much more precise with regards to stocking and inventory management.
  • Smart water fountain for pets – do you really need to monitor your pets’ water intake? Probably not. But having access to controlling the dispensing of water and food? There are already plenty of products on the market that have timers to dispense these items. Why not make that smarter? The pet business is a $55b + annual market in the United States alone, with over 3% growth annually. Providing customers with a smart pet food/water dispenser where the pets’ intake could offer an alternative for those who are not always home but still want to ensure their loved pets get the necessary food and water. Consumers spend money on their pets, as if they were their children. In many ways they are. That $55b market doesn’t seem too silly, that seems like real money.
  • Connected socks – Wow, $199 socks…yikes. Even someone like me who loves their socks (just check my instagram page – @gcourtin – for my sock selection) that is a high price tag. But let’s imagine that price tag comes down. At $20 – $50 consumers might start purchasing these items. Why? Companies like Adidas are already putting connected devices in their soccer boots to provide players and coaches with a large amount of data to craft better training regimes. Think it is silly? Click here to read a great piece on how the German national soccer team used this to win the World Cup. Runners, soccer players, basketball players, football teams and the list goes on, of athletes that could gravitate to this type of performance data. Granted this might already become available via the shoes, but if the socks are less expensive they might get to that market first.
  • Smart jars and water bottles – These could fall under the connected kitchen/home category. Do I need to know exactly how much water I drink a day? Or exactly what the nutrition content of the items in my jars? It might sound like a little overkill. What about a use case of tying in your water intake with your Fitbit or Apple Watch or smart phone? Does anyone not believe that personal health tracking devices are not firmly entrenched? Extending this into our consumption does not seem like a big stretch. The smart jar might one day be connected to a larger food supply chain. Large CPG companies such as P&G and Unilever are always interested in getting better data on the actual usage of their products. Even players such as Amazon and Google might want to find a way to have customers use these smart containers so they can better replenish items at the home.

I agree that sometimes these devices appear to be technology looking for a problem to solve. But with some aspects of IoT it might be just that at some level. We are still in the early stages of IoT. And with that there remains many skeptics, issues that still need resolution (privacy and security being two of them) and at times too many things being made “smart” for the sake of it. What we need to focus on is not the devices and gadgets that are being connected, rather the use cases that these connected devices might open up.

Now where are my connected socks?

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McDonald’s all day breakfast – the empowered consumer drives the bus

Yesterday McDonald’s took the bold move in announcing the availability of breakfast all day across their 14,300+ North American locations, starting on October 6th. Click here for the press release. Now patrons will be able to order hash browns with their McRib sandwiches or get a tasty McGriddle for dinner…all those calories and saturated fats are sure to help anyone fall asleep faster. By some estimates this move could increase the breakfast goods sales by 4%. It is also a reaction to customer demand as well as an attempt also to reinvigorate the fast food giant who has been slumping as of late.

Coming to a McDonalds by you...all day...

Coming to a McDonalds by you…all day…

With the hamburger market shifting towards more fast casual offerings such as Five Guys, Whataburger, Shake Shack and In-N-Out Burger. As well as facing competitors focused on just selling chicken related fast food, such as Chick-fil-A, and the fact that Mexican and Asian based fast foods are outpacing the burger chain – McDonalds has to figure out how to turn the tide. While time will tell how the customers and the market reacts to this move, there are some lessons to be drawn from it:

  • The empowered consumer strikes again. One of the major shifts we have seen with the digital economy is the increased power in the voice of the consumer. The customer has a voice – social, they have the reach – mobile, greater choice – the internet and thanks to folks like Amazon, have high expectations with regards to product variation. Consumers are no longer willing to accept a limited number of choices, rather they have been trained to expect and demand a large array of choice. With regards to the food industry this is no exception. Consumers don’t accept being limited by arbitrary time limitations on menu items or even not being able to customize their orders. All one has to do is listen to the orders that are throw about in Starbucks – grande skinny vanilla latte with an extra shot or venti soy latte with extra foam…it seems at times the options are endless. Consumers have been trained, in part by the likes of Amazon and Alibaba, to expect a high degree of choice. And by the likes of Dell to expect greater control in customization. The genie is out of that bottle, it will be up to retailers and consumer facing businesses to react accordingly.
  • Supply chains get none of the glory but all of the work. It is easy for consumers to expect companies like McDonalds to “flip” a switch and add breakfast items to the all day menu. Consumers at times can grow frustrated as they see a lack of action on something that appears so “simple” to the outside. The reality is the supply chains are the ones that have to keep up, and that is not a simple endeavor. McDonalds will now have to rethink their replenishment and inventory strategies – ensure that they increase their stock of breakfast foods so sustain all day demand. McDonalds and their franchises will have to keep a eye on how their demand patterns shift as well. When they offered specific menus at set times, they could at least contain demand patterns to specific times. Starting in early October demand patterns could be turned upside down. It will be crucial for McDonalds to quickly understand how these shifts will impact their distribution models within the supply chain.
  • Don’t forget the process changes to your supply chain. How about the manufacturing process, aka cooking? Each McDonalds kitchen is optimized to be able to cook breakfast and lunch/dinner using the same machines, but not at the same time. Stores will have to determine how to cook egg based products at the same time as hamburgers. Oh and you have to ensure raw eggs don’t come into contact with other food products. By some estimates it will cost individual stores up to $5000 to re-kit some of their kitchens to meet these new processes. Not a huge sum when you consider McDonalds corporate, but not a trivial amount at the franchise level. This will also change the business processes within the stores. Staff will be asked to mix and match breakfast and lunch/dinner items. New processes will have to be implemented and training will have to accompany those processes.
  • Will this be successful? These types of strategic moves can, at times, appear simple and “no brainers” but the reality hits when the numbers are digested. McDonalds must ensure they have a keen eye on the metrics. Does this drive increased in store sales? Does it provide a lift for breakfast items? How does it measure up with other McDoanalds’ products? Are there complimentary relationships that emerge? Do Big Macs paired with hash browns become a big selling item? What is the impact on margin? I am sure that McDonalds has done some extensive testing and model building to make this move, but as with all plans, most rarely survive first contact with the consumer. McDonalds must have the systems in place to monitor and measure how this impacts the financials.

McDonalds’ breakfast all day…smells like a winner. Well at least for the consumer. Question is, like with any NPI (new product introduction), can the underlying supply chain sustain success and has the new offering addressed a need that was otherwise unmet? Only time will tell. But some valuable lessons non the less.

Hmmmm, maybe I will go get an Egg McMuffin and a 6 piece Chicken McNugget for dinner…

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Filed under Current Events, Customer Service, Retail, Supply Chain