Issue #43: AI Search is Powering eComm Sales

Generative AI chatbots have taken over people’s day-to-day lives. According to a McKinsey survey, 71% of businesses now use Gen AI as of July 2024 (that number has surely climbed too). The possibilities of what Gen AI can do are virtually endless, and with each update to the model, there is more these tools can do. For instance, in Issue #35, I covered ChatGPT’s new operator functionality, which is a pseudo-personal assistant that helps people get tasks done. The new Operator feature is one of the many that has seen millions flock to ChatGPT for daily use over other sites. Take a look at the graphic below comparing ChatGPT and Google Search:

Google Search is trending down, while ChatGPT is on the rise. It is pretty stark to see the shift from normal search to AI search. 36% of all initial purchase research to buy an item begins on Google. Now that Google Search is trending down, that query has to go somewhere. People are still purchasing and wanting to do pre-purchase research. For example, look at Perplexity, a ChatGPT competitor. In the fall, it launched a Shopping Assistant feature similar to ChatGPT’s operator function. Since then, the number of queries that are shopping related has 5x’d - pretty impressive! For a site that has 15M users, that is a lot of commerce opportunities. Still, the commerce experience is clunky within most of these apps. It either links you out or you have to go search the site itself. There is no seamless way to enable commerce. However, that is all changing as Perplexity is partnering with firmly, a headless commerce startup, making every moment shippable. On the customer side, they will now be able to browse and purchase products right in Perplexity without ever having to leave the site. For merchants, they will be able to have a sale that protects their data and flows into their system. A full commerce solution!

I am very excited to see this solution rolled out. In particular, what stands out to me is that the detail of queries in Gen AI chatbots means people are super high-intent purchasers. They already want the item, which is why they are asking such detailed questions. By surfacing products at the right moment, the conversion rate will be higher. Immediately, my mind goes to two places with this technology:

• When will it be available for other retailers to white label for their sites? When will larger retailers start copying for their sites?

• How will in-person retailers utilize this technology?

In terms of Bullet #1, I think the answer is pretty clear - very soon. In terms of Bullet #2, it is not clear what will happen. These chatbots are another competitor to siphon customers away from in person purchases. However, instead of fighting it, I think retailers need to lean into it. Understand that people are going to be browsing while they are walking around - so make sure you have good wifi/cell service, shelf tags that link to QR codes, and employees who are trained in these tools. This technology has the power to draw people away from retail, but it also gives them another reason to shop in person. This tech, combined with being actually able to see/feel the product,s equals a much more productive shopping experience. I would love to hear your thoughts on this - don’t hesitate to reply!

California Pizza Kitchen Undergoes Mid-Life Crisis

On March 27th, California Pizza Kitchen aka CPK turned 40. In an homage to the mid-life crisis many people undergo when they turn 40, it released the video above. In a mix of humor, cringe, and focus on CPK’s value prop (good food and service), CPK brought great awareness to the brand. Unlike some others who have actually tried to go through a rebrand, like Twitter/X, CPK turned it into more of a joke, which is super smart. However, CPK is definitely at somewhat of an inflection point. It is a big brand, but not really in the spotlight. It has 185 locations across the world and a CPG line co-produced with Nestle in many grocery stores. In 2020, it filed for bankruptcy, shed some debt, and has been angling for an IPO or sale (Maybe Darden would be interested? They don’t have a pizza brand). In this inflection point, a viral stunt, that didn’t seem to cost much is very smart. It will be exciting to follow along to see if it has any impact on sales, awareness, or potential exits.

Fun fact, actress Busy Philipps, who started in the video, used to be a server at CPK!

Outdoor Dining Program

Over the past few years, outdoor dining space has skyrocketed. Originally started as a way for restaurants to get extra revenue during the COVID-19 pandemic, these spaces have stuck around because it is really fun to eat/drink outside. I may be biased because I really enjoy it, but still, walk by any outdoor dining space when it is nice out, it is packed! In particular, NYC saw a ton of growth in the space. Given the challenges for space and how expensive it is in NYC, this was a great opportunity to grow revenue and service customers that many not have been able to be serviced otherwise. However, given that they take up coveted free parking space and other issues, there was some pushback, which led to the program being revised. A compromise of sorts was struck - these outdoor dining spaces in the street could be put up from April to the end of the summer, but there were new additional regulations. Unfortunately, these new regulations proved to be too burdensome for most restaurants to build the outdoor dining setup. It is not cheap to set this up and take it down, especially for a business that is already super low margin. There will only be 2,600 restaurants with these structures or some form of outdoor dining this summer, down from over 12,000 that had them before. On top of that, only 7 were approved to sell alcohol in them, which is a huge part of a restraunts’s profit margin. Here’s to hoping this program gets revised to help more restaurants thrive!

I will leave you with a parting note from The Wolfe, a favorite bar/restaurant on the UWS, and one of the few in the area to secure a permit for an outdoor dining space in the street:

Exton, PA Transforms Mall to Town Center

Last week, in Issue #42, I wrote about the closing of Forever 21 and its impact on malls across the United States. It is no secret that malls are struggling. As a potential path forward, I mentioned the opportunity for malls to be converted into mixed-use areas. These areas would have shopping, restaurants, offices, homes, and apartments. Turns out, I am not the only one who sees this as a viable opportunity (thank you Papa for the tip!). This week, it was announced that the mall in Exton, PA was sold for ~$34M. The original owner owned several malls in the area and this one was struggling. What does the new owner plan on doing with it? Turning it into a new town center with a carefully curated mix of new residential, retail, dining, office, and entertainment spaces. The transformation strategy of the property is a mix of demolishing existing structures, then rebuilding, and refurbishing existing structures. There is no timeline on the project, but it will be exciting to follow along!

Stay True To Your Brand

The Ordinary is a vegan skincare line. One of the first things mentioned on the packaging and on the website is the fact that it is vegan. Simultaneously, there has been an egg shortage going on, which has seen egg prices skyrocket. So, for brands trying to get captured in the cultural zeitgeist, it makes sense that they would try to do something around it. However, for a vegan brand to get involved, that is where it gets a little tricky. The Ordinary decided to get involved on the eggs. They created a 12 pack of eggs, retailing for $3.37, and did a pop-up around it. Surprisingly, it was somewhat of a success, with people lining up to get it and posting videos all over social media. However, I think this is a very dangerous path. Being vegan is a big part of their brand. So why sell eggs? It doesn’t add up. Brand loyalty is very fickle, and you need to be super careful.

• Summary: Bandit Running produces performance running and lifestyle apparel - think a mix between your favorite running brands and some of the hypebeast, limited drops, like Kith, Supreme, etc. Unlike other apparel brands, there is a membership program that gets you early access to drops, 10% off all orders, free shipping, and an annual gift. It was founded in October 2020 by people active in the NYC running community.

• My Take: Yesterday, I took a walk down the West Side Highway. Along the 4ish mile walk, I spotted a plethora of people wearing Bandit - similar to the amounts of other brands. This area tends to be ahead of the curve in terms of the adoption of brands. In addition to these anecdotes, I love the community focus and giving people another reason to stop by the store.

• Founder(s): Tim West

• Funding: Unknown

• Number of Locations: 1

• Social Media Following: 135K on Insta, 2k on TikTok

Additional Links:

1. The World Happiness Report was released, and one of the big drivers of happiness is sharing meals (read more here for a great breakdown of the report)

2. Trader Joe’s and Aldi foot traffic rises as customers seek value (read more here)

3. A great deep dive on how Sweetgreen can grow from its current 246 locations to 1,200 locations (read more here)

4. Blank Street Coffee opened a new location in Brookline, MA (read more here)

5. Lululemon focusing on new products to bring back customers (read more here)

6. QVC Group lays off 900 employees as the company pivots to focus on live shopping (read more here)

7. Dutch Bros plans to build 1000 stores over the next 5 years as it tries to hit 4,000-7,000 stores (read more here)

8. Bar Louie files for bankruptcy for a second time as it is down to 48 locations (read more here)

9. Dollar Tree sells Family Dollar to PE firms Brigade Capital Management and Macellum Capital Management for $1B (read more here)

10. A deep dive into Liquid Death’s marketing strategy (read more here)

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