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How Costco Succeeds, the Tesla of Trucks Emerges, and Paying the Price for GrubHub

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With brick-and-mortar struggling, why is Costco so successful? In part because it breaks some of the major tenets of retail, including capping its margins, charging for entry into its stores and limiting choice: “Costco has stated in the past that it caps its margins at 14 percent for brand-name items, and 15 percent for its in-house Kirkland brands—even wine, which is notorious for its 200 percent to 300 percent markups elsewhere. But according to the company’s 2018 annual report, the average item in the store is only marked up 11 percent, compared to the 25-50 percent often seen in retail.

“That means that if Costco pays $100 wholesale for, say, a pound of Wagyu beef, it sells it to you for a mere $111. In fact, Costco’s prices are so low that it barely breaks even on its merchandise sales. … As of 2018, 51,600,000 people pay Costco membership fees, good for $3.14 billion in annual revenue. More impressively, the renewal rate is a whopping 90 percent. Unlike other discount chain customers, the majority of these cardholders are largely affluent ($100k+ income) and college-educated.”

Amazon is building a retail store in Seattle that is shrouded in secrecy but seems ready to open: “Amazon has been involved with a prime retail location in Seattle’s popular Capitol Hill neighborhood since 2015, more than a year before the company’s Amazon Go grocery concept was even announced. It’s an unusually large space for a potential new Amazon Go store, and would be the first in a residential area.

“There was a flurry of activity at the site at 600 E. Pike St. last week when GeekWire paid a visit, with whispers around the neighborhood pointing to an opening as soon as later this month. The windows are well-shielded from the public—no small cracks that reveal any hints this time around—so it’s tough to estimate the progress. But permit documents provide clues as to what’s going on inside. The site features several hallmarks of Amazon Go, the company’s high-tech grocery concept. Drawings show space for the entry and exit kiosks where customers scan a QR code on the Amazon Go app that is used to enter the store and pay for items automatically upon exit.”


Rivian, which promises to do for trucks what Tesla did for cars, is coming out of stealth mode: “Amazon led a $700 million investment in Rivian. Two months later, in April, Ford Motor invested $500 million. All told, Rivian has raised $1.7 billion without selling a single truck or SUV. If you have not heard of Rivian before, well, that was intentional. Until recently, it was in stealth mode, operating out of unmarked buildings and making few public announcements. But no longer. By the end of 2020, Rivian intends to begin producing premium electric vehicles, with a greater range than anything on the road today. …

“Walking around a former Mitsubishi plant in Normal, IL, Mr. Scaringe points to where stamping presses will churn out car parts like fenders and doors. But he is hoping to do more than sell cars. Mr. Scaringe wants to dispel myths he thinks still surround electric vehicles. ‘We have a number of untruths—a truck can’t be electric, an electric car can’t go off-road, it can’t get dirty, it can’t tow and truck buyers don’t want something that’s environmentally friendly,’ he said. ‘These things are fundamentally wrong. Electrification and technology can create a truck that’s incredibly capable and fun to drive.’”

A Former Walmart executive, Catharine Dockery, formed Vice Ventures to invest in “naughty” startups covering anything from the sex to psychedelics markets: “Many VC firms are kept from investing in ‘bad companies’ through prohibitive ‘vice clauses’ that allow backers to choose where their money shouldn’t be invested … Naughty industries have exploded, and Vice Ventures is proving that not even the poorest of the richest prudes are able to abstain from their true weakness: making money. That’s where Vice Ventures comes in. According to VentureBeat, the firm said it plans to invest around $500k in each of its portfolio companies, with a number of investments already made, including in companies like the canned CBD beverage brand, Recess, and Bev, which sells California rosé in a can.”

RealWear is pitching augmented-reality hardhats: “[The] technology is based on a tiny computer that runs Google’s Android mobile operating system. It has a camera, microphones, speaker and a tiny screen that projects information in front of the wearer’s eye. The computer screen enables the wearer to call up information on the fly; the camera enables workers to transmit an image of what they’re seeing to colleagues elsewhere. It functions similarly to the original Google Glass from 2013 but applies the underlying technology quite differently. RealWear pitches it as a tool for manufacturing or repair personnel to consult online manuals on the factory floor, or to consult a supervisor or specialist when the people on the job encounter a situation they don’t know how to address.”

With AltSchool, Mark Zuckerberg and friends tried to rethink schools; it didn’t work: “There are few industries Silicon Valley doesn’t think it can improve on. So when tech billionaires got tired of normal schools, they plowed $174 million into a San Francisco startup that wanted to reinvent education. At AltSchool, attendance got a makeover, with even kindergartners signing in on an iPad. Kids got a ‘playlist’ of activities that used a mix of apps. 

“Cameras on the walls recorded lessons so teachers could review them later. Now, the 21st-century schoolhouse, created by a former Google executive and backed by titans of tech like Mark Zuckerberg and Peter Thiel, is essentially shutting down. AltSchool is being retooled as Altitude Learning, a startup that will sell software and professional development services nationwide. Founder Max Ventilla, who worked at Google prior to starting the company in 2013, is stepping down as chief executive and will serve as Altitude’s chairman.”

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Online delivery platform GrubHub is buying up thousands of restaurant web domains, including those of a client named Shivane: “It sounds like a great deal. Restaurants can reach customers who want to order online without having to build and manage their own websites, and the platform’s marketing services can replace cumbersome, old-fashioned advertising strategies like hand-delivering take-out menus. But over time, Shivane says, she slowly watched her profits fall, even as sales held steady. …

“So she reviewed her statements. It was obvious. GrubHub’s commission fees had been inching upward over the years she’d been working with the platform. There was the flat transaction fee, which hovered around three or four percent. Then there were marketing fees and costs for additional promotions. Shivane says she feels like the platform is increasingly pay to play: Spend more to promote your restaurant, and see your search rankings rise. Cut down on marketing spend, and watch your restaurant fall to the bottom of the page and lose sales. ‘It’s putting us in a financial hole. Last month, I paid $7,000 to GrubHub. That’s my rent for the month,’ Shivane says. …

“Frustrated, Shivane started exploring other options. She says she thought about bulking up her restaurant’s web presence and offering orders on her own site through a different service, one that offered a flat monthly rate and no commission fee. There was just one problem: Someone already owned the web domain that matched her restaurant’s name. She looked up the buyer. It was GrubHub. … Grubhub purchased three different domains containing versions of Shivane’s restaurant’s name—in 2012, 2013, and 2014. ‘I never gave them permission to do that,’ she says.”


Reinhart Foodservice, an operator of a food distributing service to the foodservice industry, was acquired by Performance Food Group, a distributor of products in the foodservice industry, for $2 billion dollars. 

Zoosk, a developer of a dating application, was acquired by Spark Network Services, a global dating company with a portfolio of companies that are designed for singles seeking relationships, for $258 million.

Appcast, a provider of an online job portal for recruitment and advertising, was acquired by StepStone, an operator of job boards and niche job boards.


TrapX Security, a provider of cloud-based cybersecurity, raised $18 million in Series C funding.

Tara AI, a provider of a smart project management platform, raised $10 million in a Series A round.


There was a slight dip in factory activity for the month of June: “The Institute for Supply Management said Monday its manufacturing index slipped to 51.7 in June from 52.1 in May. Readings above 50 indicate activity is expanding, while those below 50 are in contraction. Economists surveyed by The Wall Street Journal had expected the ISM index to fall to 51.3 in June.”


Fashion startups are making environmental consciousness a part of branding: “[Sneaker brand] Allbirds discusses its materials–like its sustainably sourced wool and its use of renewable resources like eucalyptus and sugar–because these things are more tangible to the consumer. Everlane, for its part, has devoted a lot of energy to eradicating plastic from its supply chain. This summer, a spate of brands from Athleta to Madewell to Reformation to Outdoor Voices debuted swimwear lines made from recycled plastic with extensive marketing campaigns describing the problem of plastic pollution. … 

“To get customers to care about the bigger picture of climate change, startups have had to get creative in how they address it. One way they’ve done this is to participate in climate mitigation efforts that directly affect their product. For instance, when Everlane launched a carbon-neutral leather sneaker, it created an entirely new sub-brand called Tread so that it could describe in detail how it calculated the exact footprint of the shoe (all the way down to growing food for the cows) to investing in carbon offset projects specifically devoted to cattle grazing on American grasslands.”


Cannabis cookies that don’t get you high are part of a “green gold rush” in Italy called cannabis light. But there’s backlash: “The flourishing retail industry around cannabis lightweed so non-buzzy, it’s essentially the decaf coffee of marijuanasurfaced as an unintended by-product of a law meant to restore Italy as a top producer of industrial hemp. … Italy’s highest court clouded the climate four weeks ago by ruling it was illegal to market hemp-derived products that weren’t ‘in practice devoid’ of the power to provide a perceptible high. … 

“Some business owners are ready to fight back. The owner of Green Planet in the southern city of Caserta chained himself to the fence around his locked shop this month after a raid in which police seized 16 grams of cannabis light. Gioel Magini, the owner of a Cannabis Amsterdam Store franchise in Sanremo, proposed a class-action lawsuit to keep the shops open and their owners from losing money. ‘I closed a pizzeria to open this store. Now, they want us to go bankrupt,’ Magini told Italian news agency ANSA. ‘It’s as if to fight alcoholism, the sale of non-alcoholic beer is banned.’”


Chris Bachelder submitted a comment responding to yesterday’s item about companies feeling a moral obligation to take political stances: “Asking ‘which side of history do we want to be on’ doesn’t have anything to do with a compass, which always points north. The mixed metaphor aptly reflects the fuzzy thinking of people who purport to be our moral exemplars.”

And that’s what’s ahead.

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