Ep 27: This espisode: Amazon Fresh & Trouble in Streaming Land?

Upside/Downside is a podcast for finance and business geeks about the hard work of value creation with a dose of humor thrown in. 

In this episode, panelists Dana Price and Sami Akbay join me to nosh over Amazon Fresh and its impact on profits and cash flows.  Do we really have to bag our own groceries?

Then we dig into recent challenges faced by streaming companies and discuss whether a return to bunny ears and tin foil is inevitable.

Join us for an informative and entertaining 19 minutes!

Thank you for listening and please visit Upside/Downside podcast and enter your email for my FREE list: "10 places to look for higher profits and cash flow right now!".

I wish you the best on your value creation journey and if you find yourself stuck or in need of advice, please reach out via the contact form at Upside/Downside podcast today!

Matt

Transcript

SPEAKER_02: 0:02

Welcome, everyone. This is Matt Cooley, host of the podcast Upside Downside, where our panel explores the value creation angle of current news stories and how the actions we take as business professionals can affect profits and cash flow. Joining me are Dana Price and Sami Akbe, esteemed professionals and friends I turn to for advice and to share a laugh now and then. Dana is CFO at Area 9 Lyceum Group. She always makes sure her assets equals liabilities plus shareholders' equity, and she loves breaking technology. Welcome, Dana. Thank

SPEAKER_01: 0:35

you so much, Matt.

SPEAKER_02: 0:36

Sami Akbey is a technology executive and founder who bridges business and tech for a living and has been using data, AI, and analytics since before they were cool. Welcome, Sami. Thank you for having me, Matt. Today, we're talking about Amazon Fresh, as well as trouble in the land of streaming services. So let's jump right in. First, Amazon Fresh. Amazon has more than doubled the number of Amazon Fresh grocery stores in the last year, according to supermarket news, and the value prop of simplicity through technology and cost-competitive groceries continues to entice new customers. Amazon's brick and mortar grocery sales in the first half of this year jumped 14.7% to$9 billion over last year. And while this segment includes 517 Whole Foods stores, 39 Amazon Fresh stores, and 27 Amazon Go convenience stores, Amazon Fresh stores continue to stand out as they incorporate their Just Walkout and Dashcard technologies to, in a way, reinvent the chore of grocery shopping. So it piqued our interest. Panel, have you been to one of these yet? And what kinds of value creation upsides would you anticipate? So Sami, why don't you kick us off there?

SPEAKER_00: 1:53

Sure. I have been to a few of these stores and I hate waiting in lines. So I really love the technology being there which eliminates the need to get in line and wait for things. And of course, the self-checkout, the traditional self-checkout that we've seen at grocery stores, it's usually a challenge. They're getting better over time. I feel

SPEAKER_02: 2:21

that way too.

SPEAKER_00: 2:23

This was so much more convenient when I experienced that. So of course, the other side of it is there's a big shortage for labor right now. So when I go to my traditional supermarkets, very few lanes are open. And this probably is going to take away some of those lower end jobs that don't pay well and don't require qualified workers. A bunch of those will get retired. So over time, I think it's going to be more cost effective and it's going to have a positive impact on the prices or the profitability of these upper Okay.

SPEAKER_02: 3:06

So, so that, that makes sense. Dana, what, what's in your mind about this?

SPEAKER_01: 3:11

Anytime you can save time in a, what I would consider a tedious exercise running through the grocery store and, you know, waving an app and throwing your hands in the air and things just magically appearing. I think that that's a, that's a good thing. I think it's also interesting, you know, as I'm a pretty heavy Amazon user, so it'd be interesting to be able to see all the various pieces of what I buy and how I spend on Amazon together in one place. That could also be a downside, but I'm one of those people that if I can go through a grocery store and not have to talk to a human, I'm very happy about that. Okay.

SPEAKER_02: 3:53

So customer sat as well as the data analytics are upsides for you. Okay. I like that. Yeah. From my perspective, it's definitely a more efficient labor model for Amazon and it plays into the whole quite honestly, low touch, low interaction trend that we've all had to experience the last couple of years. So I think that basically is what you both said in a way, and this certainly can drive profitability for Amazon if they're successful in this. What about downsides? Sami, lead us off there.

SPEAKER_00: 4:23

All right. So first of all, for starters, I actually like to interact with people and, you know, the attraction for it, but the crew thing is in retail a certain level of friction and the whole shopping experience is built into the model and that does have advantages right I mean there's some examples of it like you walk into let's say a Costco and they'll have the chicken all the way in the back so that you go through the aisles and you know in some stores they'll put the more expensive items up front to kind of shock you with prices and And then they play these psychological tricks on you. Product placement, they'll occasionally change the location of items so that you don't find it as easily, which increases the amount of time you spend in these establishments. And also the amount of time that you spend ties pretty directly to the dollars that you spend. So in the long term, I'm not sure if reducing and removing moving the friction is in the best interest of the retailers. I mean, ultimately, there is something to be said about the whole retail therapy aspect of going shopping. And I think this takes away a little bit of that as a downside.

SPEAKER_02: 5:52

I just had a vision of you at the spa as you were talking about your retail therapy. All right. Interesting. Dana, what do you think about this?

SPEAKER_01: 6:03

So I think you led off with I break technology. So I have never been in the store and I should probably never be in a store that's technology based. God only knows what would happen if I walked in. But that aside, I mean, when you first sent me the articles and what we We're going to talk about my instant reaction because I am the opposite of polar opposite of Sami on this one is who goes to the grocery store anymore? You know, yay, Instacart. So to me, shopping is going to my curb to pick up what the Instacart or other service driver left for me. So I don't have to deal with, you know, where's the maple syrup? It used to be here. Wait, was it five dollars last week or is it seven dollars now? So I'm I'm just sort of skeptical about just grocery shopping to begin with and just how it's changed as a result of COVID. By the way, also, isn't there something to be said about what happens when you need a cleanup at aisle three?

SPEAKER_02: 7:12

Those are fair points. I think from Amazon's perspective, I'm not sure there are a lot of downsides. Very well taken regarding the friction. That's a long-term thing that we'll have to see how that transpires. But from the consumer perspective, I'm thinking you'll lose part of the community experience from going to the grocery store. Dana, I know you're rolling your eyes right now. Your phone takes over your life just a smidgen more than it used to. And you also have to bag your own groceries. So from the consumer perspective, I see some downsides to this. I'm terrible at bagging my own groceries. And I actually like thanking the for the experience that they have. Sounds kind of nerdy, but that's my take. But I think overall from Amazon's perspective, there's a lot more upsides. Okay, let's switch to trouble and streaming land. Netflix, Roku, Peacock, several others have reported declines in subscribers and revenues since the beginning of the year. It's all happened pretty quickly. Layoffs have started entering the picture as well, and stock prices in some cases have crashed. Is all of this a temporary phenomenon for streamers, or is there something more fundamental happening in regards to the value creation capability of these services? Sami, let's go with you.

SPEAKER_00: 8:35

So I think there's too much fragmentation. it's difficult to keep track of what content is playing on which streaming service. And when you really think about it, when you think about the value chain, there is the content creators and then there's the content consumers. And you have these streaming services as an intermediary. And some of them, like Netflix and Hulu, I mean, most of them have a content creation aspect expect to it as well. But in order to force their streaming service itself, they're trying to go into these exclusivity arrangements with individual streaming applications that sell the subscriptions. This is kind of like, you know, if you were in the old world, subscribing to, you know, your individual TV stations one at a time, rather than buying packages. And The upside of this is that the focus will start shifting more and more onto content and less and less fragmentation in the general space is going to happen, I think, because I can't keep track of how many of these streaming services I have right now.

SPEAKER_02: 9:59

Yeah, I like that. I like that comment about focus. Dana, what do you think about this?

SPEAKER_01: 10:05

So no pun intended, but I'm in the same shopping cart with Sami today on this one. Bada bing, ladies

SPEAKER_02: 10:12

and germs.

SPEAKER_01: 10:13

But, you know, and it is some of this sort of, you know, that nebulous area that we're in right now in sort of a pre-recession economic pressure coupled with the COVID overhang where, I mean, there's There's a lot of stock going down for many companies, right? You know, earnings releases, not so great. You know, they're not the only ones. I think that there's a lot of widespread, yeah, you know, there's certain growth in places, but I, you know, I think we're also in that very odd time of life. You know, one of those periods that you're going to look back 10 years from now and go, huh, interesting. So, but I, you know, I think it's also a great service. You know, it is fragmented, but it's great. Like for those of us who travel for business, business when you're on that aircraft and your plane lands and you didn't get to see the season finale of XYZ show, you can just go get in your Uber car that you called on your phone and bring it up while you're riding home. It's convenient. And that's something, it's all about convenience, right?

SPEAKER_02: 11:17

Yeah. Yeah. Interesting. So yeah, I agree with the comment earlier that it's hard to find new content. And when you do, it tends to be very fragmented. It's a couple's shows per channel. And that's when you start thinking about switching. I'm wondering in this space, and this is probably a longer term or midterm thing, could there be an aggregation opportunity where streamers aren't locked into the specific content libraries like they are today and even separate applications, some kind of federated content where the streamers would get paid by providers based on more agnostic measures like time viewed of the content itself instead of being locked into these content streams. Because it feels like the industry is driving itself to create low switching costs and to push people to switch. And if they could figure this federated or aggregated model out, it could drive down the marginal cost of acquiring new customers and then lower switching and churn and stuff like that. Just a thought. What are some of the downsides? We covered some of them from a customer perspective, but what are the downsides here that we should be thinking about, Sami?

SPEAKER_00: 12:35

Well, going back to what you were just saying, it might just be your lucky day, measuring how much consumption of the content and providing the content provider with a revenue share through that is exactly what providers like YouTube are doing, right? And more recently, I started looking. I mean, I like to watch CNBC in the morning. And it's almost impossible to watch CNBC unless you have a cable subscription because of their exclusive arrangements. So I looked into a service called Fubo TV, which also has a lot of soccer content. And they are an aggregator. They don't create their own content. And that's why it seemed super attractive. But the price point goes up a little bit when you go there. And then the other one is obviously YouTube TV, Hulu Live. There are a number of them that are emerging to do this. And that's going to be the downside of these streaming services because content creators will probably end up getting separated from the content aggregators, which is effectively reinventing the old broadcast model where there's a lot more granularity. Now, one of the downsides of this is that certain content used to get funded or financed through more popular content on the broadcast channels. And that opportunity may disappear. You may have certain things that have a very limited number of audience members. Maybe 100 people watch something that's valuable from an artist perspective. But because the attraction is going to be smaller, they're not going to be subsidized by the more popular activities, more popular content on the aggregator. So I think that's...

SPEAKER_02: 14:43

So what does that do? Does it push out creative projects and you just go for pure popularity?

SPEAKER_00: 14:50

Exactly. I think popularity is going to drive the commercials of economics way more more so than they did in the past. So kind of the things that you watch on NPR may not be funded enough unless there are some patrons who finance it. Otherwise, you won't be able to have that content get generated, right? So that might be one of the major downsides of this. Okay, Dana.

SPEAKER_01: 15:25

So if I think about it from a consumer perspective, You know, some of these things, when you sign up, you're excited and you're like, this is great. You know, it's only$4.99 a month. And then, I don't know, maybe 12 months later, you stop, you actually pick up your credit card bill and you say, wait a minute, how did that get to$15.99 a month? And then you actually being a good CFO. This is a true story. Yeah. And then being a good CFO, you say, well, wait a minute,$15.99 times 12 months. Wait, I'm paying how much for that? So it just seems like there's a lot of creep in pricing and, you know, some of that could just be the, you know, the economic climate we're in, but there's, there's creep that you, you know, you, it's like clicking the terms and conditions. The first time you log into anything, you don't really read it. Right. So, so from a pricing perspective, sometimes there's a little bit of a surprise after the fact, because you're not using, it's like a gym membership. You don't use it as often. And then, you know, going back to my favorite topic, technology, and I was literally like last week in the, in the living room with my husband, he's on his iPad. I'm on my iPhone. And we were trying to figure out, I don't remember which service it was, but we were trying to figure out whether we were using the same app or whether we each had a different app, what the, whose logins we were using, what was the correct login? Are we running on the mesh network? Were we running on the other wifi? It's complete

SPEAKER_02: 16:53

breakdown.

SPEAKER_01: 16:53

Well, it is. And when you think, you know, you think about it from a, from a consumer perspective, you know, To Sami's original point, it's so fragmented and you're trying to keep track of it all and you're just sort of not really sure what you're watching in the first place. Maybe there's opportunity to go back to the bunny years in tinfoil.

SPEAKER_00: 17:15

Can I just chime in for a second, Dana? There is a technological solution for that as well. I just downloaded an app recently which connects to my credit cards and bank accounts. And every month it tells me, okay, you spent this much on your subscriptions. And then if there's a change in the subscription fee, it lets me know. And it also kind of pointed out that I had some duplicate subscriptions to things like some of these streaming services and the creep up is so real. I had signed up for a service for$12 or so a few years back. This month, it's up to$25. That's like$300 a year. So yeah.

SPEAKER_02: 18:05

So that's almost like an upside to the downside of this business model. These other companies can come in and help you manage a difficult situation. Yeah, my take is there's less and less stickiness on these platforms for the reasons we've all just shared here, which lowers switching costs, it lowers margins over time. And I think the general business models in a bit of trouble. And this isn't something that's just like a post-pandemic adjustment. This is people getting sick and tired of paying these fees for a couple shows. And I think you both make very good points. It's going to be really interesting to see where this goes. Well, time is up, my friends. Dana and Sami, thank you for sharing your analysis today.

SPEAKER_01: 18:55

Thanks, Matt. Great to be here.

SPEAKER_02: 18:57

Yep. Thank you for having Oh, it's always a pleasure. And to our listeners, happy shopping and streaming. Go get your bunny ears and tinfoil and please look for the next episode of Upside Downside soon. Be well.