Travelocity Founder: Digital Revolution Is Just Beginning

by Terrie Ellerbee/associate editor

As the founder and former CEO of Travelocity, Terry Jones knows about disruptive businesses. The travel industry is forever changed. Travelocity changed how the product, in this case travel, is priced—the cost is down, he said, about 20 percent since 1996—and it changed distribution costs with the elimination of airline commissions. It dramatically changed market share, allowing smaller carriers like Jet Blue and Southwest to compete with the larger players. It also put 18,000 travel agents out of work.

Jones lived in Dallas 20 years ago, and was in The Big D again May 1 to talk with FMI 2012 attendees about innovation, success and keeping up with change.

“I’m here because I represent an industry that has been through wrenching change,” Jones said. “Innovation is about putting ideas to work. There’s the thinker and there’s the doer. We have to ‘do’ because we live in a world that’s going to change even more.”

Along the way, he explained how the “dopeler (not Doppler, dope-ler) effect” and “bozone layer” hinder innovation. He defined the dopeler effect as the tendency of stupid ideas to seem smarter when they come rapidly, and he used failures like webvan and pets.com as examples. In a two-year period during the dotcom bubble of the late 1990s, more than 500 dotcoms died.

They failed, Jones said, because those businesses didn’t learn to take the one-to-one buyer-to-seller relationship online.

“That turned out to be a lot harder than anyone ever thought,” he said. “And yet today e-commerce is bigger than ever, bigger than it was in the bubble, bigger than it is supposed to be now.”

He said the timing has to do with the way technique follows technology. It isn’t always clear where technology will go.

“Alexander Graham Bell thought the telephone would be a tool for the deaf,” Jones said. “Edison thought the phonograph would be a dictation machine. They didn’t know exactly how their inventions would be used.”

People are getting the technique down now—more than 80 percent of homebuyers search first online and 60 percent of Americans bank online, he said.

“We’re changing, too,” he said. “We are wired. We have little time. We want to click and go. We buy food at gas stations. We take pictures with telephones. We eat meals in the car. We buy lettuce in bags—and you know better than anyone else why we buy lettuce in bags. It’s more convenient.

“Even our Windex multi-tasks,” he said. “We take out laptops on vacation and we shop in our pajamas,” and thanks to smart phones and other devices, “you are never, ever ‘out’ anymore.”

The balance of power has shifted to the buyer. Geographic barriers have been eliminated. Price information is everywhere and buyer experiences are shared. With the buyer so empowered, shirt circuits are occurring in traditional distribution.

Jones talked about his career as a travel agent, when customers would call him and he would call the airline. The short circuit is that people no longer go to travel agents. They go directly to the airline.

“Your bookstore, your electronics store, your video store—bankrupt, out of business or dramatically reducing their footprint,” he said. “We’re living in a time of dramatic and very fast change, and we have to keep up with it, because as Gen. Eric Shinseki (retired Chief of Staff, U.S. Army), said, ‘If you don’t like change, you’re going to like irrelevance even less.’”

But, he said, opportunities lie where old models are crumbling.

“We have to realize that in this world, customers are internet empowered, tech savvy, time starved, information rich. That’s a new customer. Innovation is the way to keep up. So let’s define innovation. Creativity is thinking up new things. Innovation is about doing new things, putting ideas to work.”

He gave attendees a couple of ideas for gaining success, including where good ideas start.

“It used to start at the top because the top had all the information,” Jones said.

Big ideas can come from the top, he said. It was a senior vice president at American Airlines who came up with the idea for the very first airline mileage rewards program, AAdvantage. He remembered sitting at the table licking Green Stamps and putting them in the book, and how loyal that program made his mother to her grocery store.

A lot of the information used to flow to the top but, today, ideas can come from anywhere on the corporate pyramid because information now moves in all directions.

The idea of paging someone if their flight is late came from a customer service representative at Travelocity. A programmer came up with the idea of sending an email to a customer when the price of a flight drops on a desired route.

“If you are going to deal with bottom-up innovation, you as a leader have to deal with the ‘bozone layer.’ The bozone layer is the impenetrable layer of middle management that stops bright ideas from moving upward.”

Innovation isn’t the Olympics, when you train from childhood for one shot, Jones said. It’s baseball. You get lots of chances, and “if you fail 70 percent of the time, you’re actually quite good.”

And failure isn’t fatal, he said, quoting Mike Ditka.

“You have to build a culture where you can experiment,” he said. “Don’t write ‘We will never change’ in the concrete outside your building. Write ‘we experiment’ in the sand and let the water come wash it away, and write it again, and experiment again. And fail fast. Don’t wait for the train wreck.”

It is OK to keep tweaking, he said. At Amazon, Jeff Bezos tried auctions, but it didn’t work. Amazon tried stores and that didn’t work. Bezos decided to play to Amazon’s strengths. Amazon was a community of book lovers, so he decided to sell used books.

“What a radical idea,” Jones said. “Who else sells new and used together, except maybe car dealers?”

Selecting a team is exceptionally important, Jones said. But this new world requires old world knowledge mixed with youthful exuberance. Innovation comes from many different points of view.

He said at Travelocity there were a lot of young people with a lot of zeal.

“They thought the industry was broken and only they could fix it, but they didn’t have any industry knowledge,” Jones said.

Meanwhile, the “suits,” he said “moved at a slow pace, but they had industry knowledge. He said when they put the two generations together, “they fought like cats in a bag.

“But out of that crucible came some really good ideas,” he said. “Of course we have to teach the old dogs new tricks, but we have to teach the new dogs the old tricks anyway.”

He also encouraged hiring people who don’t fit in. He said a lot of people wouldn’t hire Bill Gates because he’s “a little odd.”

But one person can make all the difference. He said a “persistent guy at Expedia” kept talking about the need to create air, car and hotel packages that people could discount themselves.

“Expedia, after a year of listening to that one man, doubled their sales in two quarters, and passed Travelocity like we were stopped,” Jones aid. “Travelocity never caught them. One person can make a difference.”

He also suggested keeping teams small. At Amazon, they have the two-pizza rules. If it takes more than that to feed a team, the team is too big, Jones said. Big teams spend all their time talking to each other instead of creating good ideas.

It is also important to have “sentries,” he said, people who listen to what’s happening. At Travelocity, there was a British phone booth and on the line was customer service. Everybody in the company had to listen to two customer calls per month and then discuss two things at staff meetings: 1. How do we fix the company so that people don’t have to call us with questions? 2. In the meantime, how do we give the help desk better answers?

One thing they did was to “give the pain to the people who caused the pain,” he said. So when there were problems at Travelocity, customer emails went to the programmers.

“It works. They fixed the bugs because they don’t want to hear from customers again,” he said. “It involved them with the customers.”

Innovation isn’t rocket science, Jones said. And sometimes it only affects one aspect of a business model. Consider contact lenses, which are still bought from an ophthalmologist, he said.

“You don’t have to change everything to create a very, very large company,” he said.

When there is a big idea, Jones suggests that the people who decide whether to implement it or not be in a different department than the ones who will actually have to do it. A mechanic came up with the idea of the jetway, which today keeps airline customers dry and warm as they go to board an airplane. But the maintenance department rejected the idea. Marketing and operations, on the other hand, thought it was great. Now everyone has them.

Jones talked about businesses large and small, and the differences between them. Travelocity, he said, was like a “victory of the Lilliputians … those little guys who tied down Gulliver because they moved so very fast. If you’re a big guy, look out.”

That brought Jones to talk about Walmart, the No. 1 retailer, which he compared to Amazon.com, which was the 19th largest retailer two years ago, and last year moved up to 10th place. Walmart leads in sales, but Amazon has more than four times as many e-sales. Walmart has approximately 200 million customers each week; Amazon.com has 137 million. Amazon.com is the No. 1 retail brand, and grew by 40 percent last year. Walmart is No. 2 and its growth in the U.S. is flat.

Jones’ last point was to do more with less. That’s the slogan at his new business, kayak.com, which resulted from a dinner between the retired presidents of Orbitz, Travelocity and Expedia. They found that customers would shop on their sites, but then buy on sites like United Airlines, Marriott and Hilton. Kayak allows a user to search everything, but when they click it’s a direct link.

Kayak.com now has as many visitors as Travelocity, but it only has 160 employees and no customer service department. In contract, Travelocity employs 3,000 people, grew through traditional branding, and has a big customer service department.

Jones is optimistic about the future, and believes the digital revolution has only just begun.

“It was Ronald Reagan who said, ‘We’ve come to the edge of our known world. We’re standing on the shores of the infinite.’ That’s where I think we are right now. We’re 15 years into the digital revolution. There’s more excitement today. There’s so much to do.”

 

FMI’s Walsh: ‘Back To The Future’ For Chicago Show In 2014

Though FMI 2012 The Food Retail Show just wrapped up in Dallas, Texas, Food Marketing Institute officials already are preparing for the big show in 2014.

Pat Walsh, SVP of industry relations, education and research for FMI, tells The Shelby Report that show will be held at McCormick Place in Chicago. It is scheduled for June 10-13.

“We’re going back to Chicago, which is really our home—and I think you could probably say it’s kind of ‘back to the future,’” Walsh says. “We’re going to obviously be in a very centralized and popular location in Chicago; we expect that to continue to build our attendance.”

In addition, FMI is currently is in negotiations with a number of potential association partners to co-locate their exhibits and education programs.

“While we’re going back to Chicago, I think we’ll be poised in putting on a very futuristic event in terms where the industry is going, where consumers are going,” Walsh says. “And obviously there’s going to be a lot of change in the technology arena over the next several years so we’re really looking forward to it.”

FMI 2012, held last week, saw approximately 15,000 attendees.

“(It) was a good improvement vs. our last show in Las Vegas in 2010,” Walsh says, “so we were very pleased with the numbers.

“The show, from my perspective, really achieved its objective in terms of building the awareness for retailers and their suppliers to focus on what the future is going to look like for the food industry,” he adds. “We touched on a myriad of issues, particularly in the areas of e-commerce and online shopping; we really tried to present a holistic program in terms of opportunities for industry growth and rethinking how we do business going forward.”

The show hosted approximately 950 exhibitors, co-locating with U.S. Food Showcase 2012; AMI International Meat, Poultry and Seafood Industry Convention and Exposition; and United Fresh 2012

“Clearly it was our goal to try and bring a more holistic view of the total store environment by including fresh foods, particularly produce and meat, into the show and give those attendees a broader perspective about what’s going on in the food industry,” Walsh says.

“I think the initial feedback we’ve received, from both the exhibit show experience as well as the education program, was that attendees were very pleased because it gave them a more forward-thinking view of the things they need to take into consideration in terms of how they want to grow their businesses going forward.”

 

 

 

 

Keoni Chang Awarded FMI’s Grand Chef Title

Keoni Chang of Foodland Super Markets Ltd. in Honolulu, Hawaii, has won the title of Grand Chef for the Food Marketing Institute’s (FMI) Supermarket Chef Showdown.

Chang enticed the judges with his mouthwatering dish, Deconstructed Ahi California Roll, from the “Indulgent” recipe category.

Go here to read more about Chang and the showdown competition.

The featured photo of Keoni Chang at the top is courtesy of Deborah Booker, The Honolulu Advertiser.

Sarasin: Don’t Overlook the Magnitude of Current Trends

by Terrie Ellerbee

associate editor

 

Just as it takes two separate eyes looking at an object from their distinct angles to achieve perspective and a sense of depth, the U.S. Grocery Shopper Trends and FMI Speaks: The State of the Food Retail Industry reports each have individual focuses, but put together they create a picture of the current state of the industry, said Leslie Sarasin, CEO of the Food Marketing Institute (FMI).

She made those remarks while giving the annual presentation on May 1 in Dallas at FMI 2012 The Food Retailing Show.

One sobering statistic she offered was that primary stores received the lowest percentage share of grocery trips they have received in recent years: 64 percent. She explored some of the reasons that has happened.

She wasn’t there to present new ideas, necessarily, but said that even when ideas or trends are familiar, people can overlook the magnitude of what is happening in front of them.

She discussed four movements in detail: the value-seeking American consumer; technology as a fact of shopping life; online shopping eating away at center store; and format innovation pointing to new differentiators.

“Every single one of these movements that I’m going to talk about, you’ve seen them before. You’re read about them,” she said. “In what I’m going to tell you about now not only are there trees, but there’s also a forest out there.”

Sarasin began with the economy, and its “amoeba-ish ooze toward recovery.” A new normal is emerging.

“The center of shopper buying patterns has shifted in the decided direction of value-seeking behaviors and a continued search for the biggest bang for the buck at the checkout stand,” Sarasin said. “And there’s every indication that this movement has staying power. We’re going to be living with this for a while. We saw the immediate results of the economic downturn. The whirlwind we’re now reaping is the lasting effect it’s had on the spending psyche of the American shopper.”

In one survey, shoppers were asked to respond to this statement: “I seek discounts often.” Sixty-one percent said they always do; 28 percent said they’d made some changes; and a few said they would likely revert to pre-recessionary style shopping. Sarasin said that a few years ago, 60 percent of shoppers were “driving for discounts.” Today that figure is 80 percent, representing some 19 million more American households on “the discount safari—and they’re becoming smarter and more systemized in the way they are doing it,” she said.

Another statement that 32 percent of respondents agreed with: “I accept living with less.” Thirteen percent identify their new way of life as a lasting change.

“So where once 42 percent felt this way, an increase of some 15 million families means that now well over half, or 55 percent, of the families we’re feeding feel the pinch of living with less,” Sarasin said.

In the new normal, 14 percent more shoppers said they are comfortable buying private label brands. About half of those who have made the move to private label believe it will be an enduring conversion.

“That’s a bump of about 16 million more families planning to continue buying private brands—even if the economic reason for doing so is no longer a compelling factor,” Sarasin said.

Seventy percent said store brands are a great value, and 68 percent said they would keep buying them.

“The staying power of private brands, the willingness to accept living with less and the planned continuation of looking for discounts all point to a new normal shopping behavior,” Sarasin said.

She said that as with the Great Depression-era generations, today’s consumers are being shaped by their economic experience, and it cuts across all levels of wealth, she said.

“And while we in food retail see it every single day, we simply cannot afford to let our familiarity with it result in a failure to register the culture-changing significance of it,” she said.

In the new customer culture, shoppers are using every resource at their disposal to lower their grocery bills. Digital technology is one of the most effective tools.

“Now I know most of you, like me, who are over 40, probably all just inwardly cringed or even uttered an expletive when I said the words ‘digital technology,’” Sarasin said. “But it’s time for all of us to overcome our reticence, so repeat after me: technology is my friend; technology is my friend.”

She compared the new tech world to “the old Wild West, where new gadgets, software, apps and programs are emerging quicker than we can get our arms around the one that came before, resulting in what I call a true sense of lawlessness out there.”

There are many fields on which to play now, and retailers and consumer package goods (CPG) companies must find the opportunities that suit them best.

More than half of customers go online before they make at least one out of every four trips to the grocery store, and they’re using their smart phones to access digital technology once they are in the store to find coupons, research products and check prices. Younger, upper income shoppers are now the most likely to use these tools, but the use of this technology in these ways is growing across all demographics.

“So think of it this way,” Sarasin said. “At any given time, one-eighth of the customers in your store have either before they arrived or while they’re in the store, encountered you online.”

That means retailers have to expand the way they think about customer service. It is no longer limited to face-to-face interaction.

“It also embraces the virtual encounter—the way you greet, serve and address the needs of your customers in your online presence,” Sarasin said. “In a multi-channel world, we have to broaden our customer service thinking so that we’re giving shoppers a rich and comprehensive online experience as well as a unique and fulfilling in-store experience.”

The days of just “throwing up a website” and getting back to “normal business” are gone, she said.

“Just as you give attention to your store appearance and staff interaction with your customers, you must also give continual attention to the way you come across to your customers online,” Sarasin said. “Are you giving them the information, the personalized attention they expect and want? In fact, I would be so bold as to suggest that the right question is not, ‘Does your website match the store experience?’ The right question is, ‘Does your store provide the same access to information and convenience that your customers can get from their on-site experiences?’”

FMI offered an entire technology track at the show with workshops specifically focused on the use of digital tools to help personalize the customer shopping experience.

Coupons were the next topic Sarasin tackled. It wasn’t just the show “Extreme Couponing” that got consumers clipping. Digital technology was a big contributor, she said. Almost 10 percent of shoppers say they use online coupons most every time they shop, 9 percent said they use them about every other time and 15 percent said it was about once in three or four trips.

“It means that a third—one-third of your shoppers—make use of online coupons, even if it’s spread over several trips, and this is going to keep growing,” Sarasin said.

Providing customers with the digital support to be able to make full use of electronic devices is good customer service, she said. Research shows that customers use their devices in-store to track the shopping list, check recipes, seek coupons, track their spending and search out nutritional information.

The third piece of the puzzle behind value-seeking consumers and their empowerment by way of digital technology is e-commerce. She polled the room to see how many had purchased something online and how many had done so more in the past year than the year before. Nearly everyone in the room raised a hand.

More than half of the shoppers surveyed said they’d make a purchase in an online grocery category. Today, the majority of online shopping is in non-grocery categories like electronics, books, music, clothing or software.

“But we’d better be paying attention or we risk having our company names included with the likes of Circuit City, Borders, Tower Records, and you know the list as well as I do,” Sarasin said.

In 2010, online shopping accounted for $12 billion in sales (2 percent of sales) of consumer package goods. That will double by 2014, and it will only increase as digital “natives—that’s what we call the first generation wet-nursed on technology—form their own households and become shoppers rather than shopped-fors,” Sarasin said. “The list of product areas experiencing growth as online purchases could almost be a list of your center store aisle markers … personal and beauty care, home essentials, dry groceries, beverages, pet care.”

She shared what the data reveals about online vs. offline basket sizes in a couple of categories: food and beverage, $80 online/$30 offline; health and beauty, $30 online/$10 offline.

She described the changes in the way people shop as analogous to raising the base paths two feet in baseball or making a football field 120 yards long vs. 100 yards. There would be “an uproar,” she said. “A competitive event would just be made tougher because the dimensions of the playing field changed.”

She asked attendees to think about how sports teams would adjust. There would be initial grousing, yes, but then they would look for ways to make the larger playing field work for them. They would up their game.

“Well, that’s what we have to do, too,” Sarasin said. “This is our new reality.”

An executive interviewed for the annual reports said, “We would best describe the online experience as simpler with better prices and a broader, more relevant assortment.”

The consumer need for convenience is driving shoppers online. It offers the benefits of home shopping and home delivery. In addition, not only is it easier to find items online, but it also is easier to explore information, reviews and comparisons.

Sarasin invited attendees to study the data because there are online benefits that can be replicated in-store and online weaknesses than can be exploited. FMI will offer more information on this topic by way of seminars and webinars that will dive deeper into the research she presented. Sarasin encouraged FMI members to visit the newly overhauled FMI website (fmi.org) to review abstracts, research and more on food retail e-commerce and other topics.

Store format innovation is the final piece of the puzzle Sarasin spoke about.

“In pre-recession years, growth was accomplished by adding more square footage, adhering to the notion that bigger was better,” she said. “But since 2005, traditional grocery stores haven’t been growing in terms of square footage, and importantly, this stagnation has occurred while other formats have added roughly 150 million s.f. of grocery category space to their facilities.”

She repeated the 150 million s.f. statistic.

Meanwhile, she said, “the grocery store format wisdom seems to be saying that smaller is smarter.”

Sarasin said the industry moved from the mom-and-pop format of the 1940s to the supermarket of the 1960s, to the hypermarket of the 1990s, and now, “with a hi-tech twist, we’re back to the values, at least of the mom-and-pop program: personalized service, customized assortments and a ‘served,’ not ‘sold to’ mentality.”

The clincher is that “the smaller format must fit into a larger hi-tech picture driven by a value-seeking and digitally-informed customer,” she said. “Small formats provide the promise of a more simplified shopping experience and … they are receiving renewed interest, especially for the stock-up trip.”

She said only one in 10 shoppers use small formats as their primary store, but about one-third use them for a quick trip, fill-in function. The allure of the small format becomes more significant as a blurring between the stock-up and fill-in functions begins to occur.

The more successful small formats are hitting two of three areas: finding a niche like fresh food in an underserved area, quick and easy shopping with a focus on a faster checkout and simple store navigation.

“This provides a new look to future formats, and it’s not just food for thought,” Sarasin said. “It’s a whole shopping cart full of food for thought for the journey into the future.”

 

United Fresh: Crunch Pak Working On Scratch-And-Sniff Stickers

Crunch Pak is introducing innovations such as scratch-and-sniff labels at the United Fresh Produce Association 2012 Show going on in Dallas this week in conjunction with the Food Marketing Institute (FMI) Show and American Meat Institute (AMI) Convention & Expo.

Crunch Pak’s scratch-and-sniff labels are set for release in August, just in time to pack lunchboxes for back-to-school, according to Tony Freytag.

Crunch Pak specializes in apple products.

“One of the things we are working on for our flavored products that we want to introduce for back-to-school in August is…a scratch-and-sniff type of label or sticker,” Freytag said. “This will allow the consumer to get the aroma of what the apples are going to taste like. We have grape, peach mango and strawberry cream, and those flavors will be embedded into that label. They can scratch it and actually get the aroma,” according to Freytag.

“That is one of the things that we are real proud of, that we were able to capture the texture and the aroma as well as the flavor. In retail you want to create a reason for someone to pick up your product. This gives them a reason to pick up your product, to touch it, to look at it, to feel it and now they can smell it. The next step is to buy it. If we can accomplish all of those things, there is a higher likelihood that they will take it to the checkout and scan it.”

Freytag explained that the scratch-and-sniff labels are still in the production process and he isn’t sure yet how consumers will actually see the labels.

“We haven’t come up with a term but it will be a starburst or something that will call it out, and within the channels we also will do danglers,” he said. “We are still working through it…We all know we get all kinds of things in the mail with encapsulated smells and aromas, and this is really the same technology we are bringing over.”

Crunch Pak also is adding more equipment to its operation this summer after the continued success of its Dipperz and Foodles lines.

“Dipperz are growing very rapidly as we speak. Additionally, our Foodles trays, which are our trays with the Disney characters, have continued to take off and continue to grow,” he said. “The fact is we are adding considerable more equipment this summer just to do more trays.”

In the featured photo at top: Tony Freytag of Crunch Pak at United Fresh 2012.

FMI Forms Partnership With TopSource To Provide Procurement Solutions

From FMI Show 2012

The Food Marketing Institute (FMI) has formed a strategic business partnership with TopSource LLC, a sourcing company and wholly owned subsidiary of Topco Associates LLC.

FMI and TopSource will work together on program initiatives to help food retailers and wholesalers identify business opportunities and better serve the needs of their customers. FMI members will realize significant savings related to costs in not-for-resale areas, according to the companies.

Leslie G. Sarasin, president and CEO of FMI, said, “This new partnership with TopSource addresses FMI members’ needs as they enhance their businesses, create efficiencies in operations and address their ultimate bottom lines.

Randy Skoda, president and CEO of Topco, added, “We are proud to be in partnership with FMI. The synergy between our two organizations is unparalleled as we both work with retailers and wholesalers to help them be successful. TopSource will provide FMI with a not-for-resale solution that will benefit hundreds of companies.”

Steve Smith, president and CEO of K-VA-T Food Stores, Topco’s chairman of the board and past FMI chairman, said, “As an active member of both FMI and Topco, I am confident that this partnership will provide tremendous value to independent retail members of both organizations.”

More details on the partnership will be announced in the coming months.

FMI’s nearly 330 associate members include the supplier partners of its retail and wholesale members.

TopSource assists grocery, retail and wholesale companies to realize significant savings in the area of not-for-resale (NFR), often called indirect spend. Across 12 NFR categories, TopSource has saved its customers an average of 15 percent annually in areas such as store equipment, office products, packaging, IT/telecom, construction, logistics and distribution, marketing, healthcare, energy management and hired services.