Lisa Sedlar, CEO and founder of Green Zebra was preparing for a $10 million raise from venture capital funders, to finance a West Coast expansion of her convenience store chain, Gr

Validate or Pivot? 1

Validate or Pivot? Using Content Analysis to Assess Green Zebra’s Customer Value Proposition Case A

Charla Mathwick, Portland State University

Known for its food-cart culture, craft beer, and some of the finest Pinot Noir in the country, Portland, Oregon’s latest addition to the food scene, Green Zebra Grocery, was a healthy take on the convenience store. Lisa Sedlar, CEO and founder of Green Zebra prepared for a $10 million raise from venture capital funders, to finance a West Coast expansion of her c-store chain. With her first fund raising trip scheduled to begin in just two weeks, Sedlar took stock of the preliminary feedback she received, trying to decide whether she needed to rethink her customer value proposition (CVP). She found that the massive oversupply of square footage dedicated to grocery retailing in the U.S. made investors nervous about putting money behind another brick and mortar ‘grocery’ chain. On top of that, just three months after her June, 2018 press release announcing plans to expand the Green Zebra chain,1 Amazon announced a 3,000-store national expansion of Amazon-Go, a high-tech retail format described as the future of c-store retailing.2

Sedlar described Green Zebra’s market positioning as a “cross between a Whole Foods and a 7-11,” emphasizing a CVP that was a “mashup of healthy and convenience” (See Exhibit 1). Given Amazon’s recent announcement, however, Sedlar knew that she needed to be prepared to address inevitable questions that would come up regarding her competitive advantage relative to Amazon Go. That meant she either needed evidence that would validate her current value proposition, or she needed to make the decision to revise her CVP and convincingly demonstrate Green Zebra offered a differentiated advantage in the c-store market. The round of meetings with venture capital investors outside the Portland market had been months in the making, and fourth quarter 2018 was booked with one VC pitch after another. Given that the first pitch was just two weeks away, Sedlar had no time to waste.

BEYOND CONVENIENCE TO ADDED VALUE

Sedlar founded Green Zebra in 2013, twenty years into a successful career in the grocery sector working first for Whole Foods and later serving as CEO of New Seasons Market, an upscale grocer operating in Portland. Five and one-half years in, Green Zebra generated about $12 million in revenues from its three existing locations. Continuing to experiment with format, assortment, and target customer, Sedlar began investigating the possibility of opening a fourth location in the Portland metro area while seeking funding to expand to 20 locations up and down the West Coast by 2023.

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2 Case Research Journal •Volume 39• Issue 3• Summer 2019

Historically, convenience stores had been places where the type of products sold could actually harm ones’ health – cigarettes, alcohol, lottery tickets, and sugary foods. Green Zebra by comparison looked to enhance health outcomes in its neighborhoods. “Our Mission is to make healthy, natural, and organic food accessible to all,” explained Sedlar, “particularly in dense urban neighborhoods where there are fewer fresh and organic grocery options. We don’t want our customers to sacrifice health for convenience.”

Portland’s foodie culture had garnered a national reputation for food and beverage innovation. At the heart of that innovation was a heritage of organic and sustainable farming, ranching, and artisan food production that was a source of local pride. The Green Zebra shopping experience reflected that culture by offering “a healthy neighborhood grocery that featured local products to serve the daily eater,” as Sedlar liked to refer to her customers.3 And for some of her eaters, the trip to Green Zebra was repeated with nearly every meal, beginning at breakfast with a latte to-go from their premium coffee bar, Boldly Brewed. As Sedlar described it, “you might get a cup of coffee at a grocery store but it’s unlikely you would go to a grocery store specifically for your morning coffee. For most people, ‘convenience-store coffee’ is a slur that describes coffee at its worst. But we definitely see regulars who come to us for their morning coffee trip.”

Many Green Zebra eaters returned at lunchtime for a cup of tomato basil soup, a made-to-order sandwich paired with kombucha, or one of Portland’s famed craft beers. In the middle of the day, office workers dropped by to grab a piece of fruit before heading back to their desk. The regulars repeatedly mentioned the need for a break from their screens, as one of the benefits a trip to Green Zebra offered. Sedlar concluded that a few minutes away from the office during the day had real value. As she was fond of saying, “people don’t want hot coffee delivered to their desk. There’s joy in selecting some things for yourself.”

By the end of the day, an entirely different crowd would come through to pick up a few fill-in items or a freshly prepared meal to warm up at home. “Our customers don’t need to stock-up at home when they have a little neighborhood spot for all their everyday items like milk, eggs, bread, or chicken breasts,” claimed Sedlar. Green Zebra was serving several distinct markets over the course of the day, each trying to accomplish different jobs. Rather than simply serving as a grocer, Green Zebra operated at the intersection of a healthy ‘fast-food’ restaurant for daytime eaters while serving as an outsourced pantry for residential shoppers.

One of the ways Sedlar looked to establish a connection with her customers was to showcase novel products, to surprise them with something new, and something they hadn’t tried before. Her product assortment was infused with a delight strategy that aligned with Sedlar’s passion to support local food entrepreneurs. “Tasting something new and delicious, is such a fun part of discovery for food lovers,” explained Sedlar.

It’s also one way I can give back to the local community by helping them launch their new products. For example, a few months ago I came across a cold brewed coffee sweetened with almond milk infused with CBD, the compound found in marijuana to ease aches and pain. This product offers all the benefits of coffee but chills out the caffeine-buzz. We were the first to introduce it to this market.

The traditional grocery business model required an average basket size of around $30, reflecting the ‘center of the store’ stock-up trip that big box grocers depended on to reach profitability. By contrast, the Green Zebra business model was optimized to

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Validate or Pivot? 3

serve a $10 to $12 transaction, one third the size of an average grocery transaction but 30% higher than the $6 industry average in the c-store sector, according to the National Association of Convenience Stores (NACS). Another difference relative to the c-store industry, was Green Zebra’s assortment. The top selling categories in a c-store were cigarettes and tobacco products, something Green Zebra didn’t even carry. Instead, Sedlar’s number one seller was the organic salad bar.

On an annualized basis, Sedlar estimated that her customers spent as much as they would in a traditional supermarket setting, given that she was serving daily shoppers and captured ‘best in class’ margins of 40% from her premium product assortment. This compared to the 34% margins estimated by the NACS as typical of c-store locations that didn’t sell gasoline. Moreover, Green Zebra’s $12 million in revenue in 2018, was well over twice the national c-store average of $1.53 million per store.4 Nonetheless, to gain the financial backing for her expansion strategy, Sedlar knew she needed to address the competitive threats that emerged in 2018.

Sedlar understood that c-store service had to be quick. But as she explained it, “when the staff says, ‘Hey, thanks for coming in, thanks for shopping with us today’ and really meant it that kind of authenticity had the potential to create something meaningful for people.” Sedlar wanted to give her shoppers a reason to get out of the office during the day, get some fresh air and have a real conversation with the person behind the counter who sold them their afternoon beverage or snack. “I believe community is built around small, meaningful interactions like that. Our customers are a part of our day and we want to be a part of theirs.”

Creating a culture capable of delivering that level of personal connection, however, was not easy. Green Zebra’s retail environment could be intense. For example, their campus location alone served an average of 1,500 shopping trips a day. One of the big challenges was that all that activity was packed into a retail footprint that ranged in size from 4,000 – 5,600 square feet. That is slightly larger than a typical 7-Eleven and roughly one-seventh the size of the average U.S. grocery store. She typically scheduled 10 to 12 frontline employees to work behind the registers, the deli counter, to restock the shelves, or work in the kitchen during peak hours.

When asked about their hiring and training practices, Danielle Frankel, Green Zebra’s People Team Manager described a recruiting process that valued a background that went well beyond the grocery or c-store industry. Frankel described looking for “warm, customer-focused, people-people, interested in working in service to each other, their customers, and the community.” A culture of service was at the core of the organization, encouraging employees to “feel free to go above and beyond for customers.” For example, many Green Zebra shoppers walked or would ride their bike to the store and occasionally someone would buy more than they could easily carry back home. Frankel described staff who walked customers home if they saw someone who had too many bags to carry. She explained, “to ease their mind about how far to go to deliver great service, everyone was issued a ‘get off the hook’ card their first day on the job to encourage an above-and-beyond service ethos.”

By 2018, Green Zebra had over 100 employees, most of whom were full time, a rarity in the c-store industry. Sedlar firmly believed that the people on the frontlines were a vital part of an experience she hoped would set their operation apart from competitors. In addition to health care benefits for both full and part-time employees, as well as a profit-sharing program, the company practiced open-book financials. Quarterly all-staff meetings were held to updated employees on how the company was performing. The goal was to ensure that everyone knew how the business worked to empower them to take a greater stake in its future.

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4 Case Research Journal •Volume 39• Issue 3• Summer 2019

THE C-STORE INDUSTRY

The c-store industry was founded in 1927 when 7-Eleven began offering an assortment of perishable basics like eggs, milk, and bread from ice-house storefronts in Dallas, Texas. Within a year, they were experimenting with the addition of gasoline pumps, foreshadowing what industry analysts regarded as the c-store market, a gasoline/food service combination.5 As America’s love affair with the automobile grew, locating c- stores along the nation’s interstate highway system and major commuter routes became the norm. As of 2018, nearly 80% of fuel purchases in the United States occurred through the c-store channel.

Nonetheless, the foodservice side of the business was far from trivial, with revenues of $38 billion in 2017, estimated to grow to $44.6 billion by 2022. The c- store industry was consolidating in the U.S. with acquisitions by 7-Eleven in particular. Despite these growth trends, increased competitive pressure coupled with stable or declining gas prices were forecasted to create a drag on revenue in the traditional gasoline/c-store sector.6 In addition, labor represented a significant cost in this industry where costs increased by 8-10% annually, attributable in part to a turnover rate that approached 115% in 2017. Continuing low U.S. unemployment rates through 2019 were expected to exacerbate these negative trends. In response, the industry began to turn to technology to rein-in staffing and communication expenses by upgrading loyalty program administration and adding self-serve solutions instore.

Urban c-stores dedicated to food retailing rather than fuel fill-ups was a growing trend among the incumbent operators such as Kwik Trip Inc., Quick-Trip Corp., and 7-Eleven. These firms were responding to competitive pressures in the urban c-store market as Walgreens, Amazon, and discount retailers began to test various c-store formats. With assortments that were transitioning toward fresh or prepared-foods and away from snack foods, urban c-store operators were as likely to find themselves competing with quick-service restaurants, as they were with each other.7 Despite making progress with this shift in assortment, only 36% of c-store patrons reported being satisfied with the healthiness of available foodservice options in c-store channels.8

Although giants like 7-Eleven and Walgreens had begun to add more fresh foods to their assortment, Sedlar felt they were missing the mark. Her instincts pointed her toward creating something that had the potential to become the heart of the neighborhood. The sweet spot for the expansion strategy she was pitching to investors was the combination of high density, good education, and healthy household incomes all concentrated in the kind of walkable, 10-minute neighborhoods found in Seattle, Los Angeles, and the San Francisco Bay Area. “We are planning to build out pods of stores,” explained Sedlar. “When we go into Seattle, for example, we will sign leases in groups of three and plan to open them in relatively quick succession. In Portland, we found that approach provided efficiencies in both product sourcing and shared labor. It’s something we plan to replicate up and down the West Coast.” C-Store Growth Attracts a Big Player

The potential opportunity to reinvent the c-store format began to attract new entrants including Amazon, with their launch of the Amazon Go concept store in 2016. Amazon Go invited shoppers to step into the inner workings of a futuristic, self-serve retail experience. Launched in the shadow of corporate headquarters in Seattle, shoppers downloaded and activated the Amazon Go app on their smartphone and swiped it at the door to gain access to a cashier-less shopping experience. Amazon Go engineers were testing sensors and computer vision technology to detect what

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Validate or Pivot? 5

shoppers picked up, put back on the shelves, and ultimately walked out with, all captured for automatic credit card billing.

Although their innovative technology eliminated the need for employees at the point-of-sale, the business model was not exactly devoid of human service support. The Amazon Go retail operation relied on people in the kitchen, stocking shelves, loading carts, and observing shopper behavior behind the scenes. Sedlar estimated the labor costs for the Amazon Go model were still too high to turn a tight margin business into a profitable venture. Nonetheless, they were tackling one of the biggest challenges in the c-store category by attempting to eliminate the queue from a retail footprint that simply was not large enough to accommodate the long lines that would show up at lunch or near the dinner hour. When asked about the threat Amazon Go posed, Sedlar admitted, “If Amazon’s self-checkout is easy and reliable for the customer, if it can control theft, and if it is affordable enough for retailers to implement, I’m in! Today, we take Applepay and use phones to scan things, but most of our customers still use cash or cards. The market has to catch up with the technology to make this type of high-tech payment system commercially viable.” A DIFFERENT WAY TO TELL THE GREEN ZEBRA STORY

Sedlar didn’t have the time or money to conduct a full-scale customer survey to help her validate the degree to which her current CVP resonated with existing customers. Nonetheless, she realized there might be a way to tap into the voice of the customer to decide whether, and in what way she might need to revise her CVP and competitive positioning. An article published by the National Retail Federation on the topic of uncovering retail trends caught her attention. It pointed to social media content as an important source of data to develop customer insights. This qualitative approach to research involved mining user-generated content in the form of online product reviews, Instagram photos, or blog posts to gain insight into customer attitudes and perceptions. Sedlar’s team were monitoring and responding to social media feedback since she opened the doors in 2013. She realized they might be able to analyze customer reviews to document customer perceptions of Green Zebra.

In a related article, Pew Research reported that “two-third of U.S. adults say they nearly always read online ratings and reviews,” a tendency magnified among shoppers under 50 years of age. Beyond the posted content itself, the emotional intensity of a review, reflected in extreme negative or positive sentiment, seemed to be what influenced shopping behavior most. For example, “some 54% of Americans who read online reviews indicated they tended to focus on extremely negative reviews while 43% paid more attention to extremely positive reviews when trying to make a purchase decision”.9

Sedlar felt the comments contained in customer reviews could be translated into strategic insight using a structured analysis of reoccurring themes. By thematically categorizing user generated content, she could assess her assumptions regarding benefits sought, barriers to adoption, or perceived differences in competitive offerings. Moreover, verbatim comments taken from posted reviews reflected the actual voice of the customer, offering language that could be incorporated into marketing communication or used in messaging directed toward prospective investors. The intensity of positive or negative sentiment in response to different elements of the customer experience also signaled strength or potential weakness in a firm’s solution, based on a shopper’s first-hand experience.

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6 Case Research Journal •Volume 39• Issue 3• Summer 2019

Sedlar asked her social media manager to pull 10 to 15 customer reviews each for Green Zebra (See Exhibit 2), Amazon Go (See Exhibit 3), and 7-Eleven (See Exhibit 4).10 to see what shoppers were saying. As she looked through the report, she came across one customer who posted the following comment, directly relevant to Green Zebra’s value proposition:

The convenience and the quality of the store means that prices are going to be a little bit more expensive than average. But the goal isn't to buy groceries for a family of 4. For the purposes of kids in dorms or office folk with cafeteria fridges, green zebra does the job! (GZ #15: 143 friends, 107 reviews, FOUR Stars, 7/24/2017)

The Amazon Go posts reflected a different focus among shoppers:

The convenience this store offers is an addiction. … You basically just walk in, scan the Amazon go app at the door, take what you need, and walk out. Amazon automatically bills this to your Amazon account and sends you a receipt within minutes. Prices are the same as any other store. (I have compared this). If only they would widen their store offerings- More groceries- I would never shop anywhere else. (AG#10: 181 friends, 121 reviews, FIVE STARS 5/2/2018)

Sedlar came across this posted review for 7-Eleven:

This is your standard downtown 7-11 with homeless punks in front and silent cashiers. The cashiers start to warm up to you after you've purchased your 3rd big gulp, so that's nice. The Red Bull is never out of stock and they can hand you any pack of cigarettes in less than 7 seconds. What more do you really want from a 7-11? Will happily continue buying Red Bull from this 7-11. (7- ELEVEN #6: 7 friends, 34 reviews, THREE STARS 2/16/2018)

Although Sedlar felt confident that Green Zebra was ahead of the trends reshaping the c-store shopping experience, she realized that letting customers speak for themselves might help investors appreciate what she could see was happening from the front lines. Tapping into the voice of the customer by analyzing social media content, might also help to clarify how competitive differences across the c-store sector were shaping up.

Scheduled to be on the road in two weeks for her initial round of investor meetings, Sedlar realized that Amazon Go’s recent announcement represented a direct threat to her ability to close the funding round. And without a successful $10 million venture capital raise, her plans to scale the operation would be off the table. Sedlar hoped a content analysis of the social media report generated by her staff, would help to clarify her options. She either needed evidence that validated the differentiated advantage created by her ‘healthy convenience’ positioning and CVP, or she would need to use the results of the content analysis to decide how to pivot her CVP to differentiate her competitive positioning in response to the evolving c-store market.

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Validate or Pivot? 7

Exhibit 1 – Current Investor Materials Green Zebra is redefining what it means to be a convenience store in America.

The problem with convenience stores is they don’t have healthy food. The problem with natural food stores is they aren’t convenient. Green Zebra Grocery is a mashup of healthy AND convenient. Think of us as a cross between a Whole Foods and a 7- 11.

Gone are the days of stocking up on groceries, today’s eaters shop by the meal and at Green Zebra, meals are fresher, healthier and quicker. We are your daily destination for delicious everyday meals, snacks and beverages. Our product selection is thoughtfully curated to meet the needs of people who want healthy food and are short on time (basically everyone).

Oh and in case you want to know about the origin of our name….here is a Green Zebra Tomato!

Source: L. Sedlar, Personal Communication. Feb. 10, 2019

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8 Case Research Journal •Volume 39• Issue 3• Summer 2019

Exhibit 2 – Green Zebra Grocery Customer Reviews. GZ#1: 275 friends, 1 review, FOUR STARS, 12/1/2018

I go to the Lloyd GZG just about every day. When my post-gym hanger sets in, I know I will find a plethora of options to tickle my tummy. The salad bar is stellar, the hot bar is always stocked with delicious, fresh and local picks, and they even carry my favorite ground turkey, Mary's. It's the only place I go to now. It's incredibly convenient for grab and go food, but they also have a curated selection of produce, wine, nuts and cheeses- Hello wine night with the girls!

Okay, I thought I was coffee-crazed before I moved to Portland, however, the obsession here is next-level. GZG serves Stumptown – which is now my favorite coffee ever and the barista, Andrew, not only knows my name but my order. I’ve never been to a grocery store that has friendlier employees or feels more like a little family. Everyone truly seems to enjoy their jobs and the inviting environment has led me to recommend GZG to my co-workers and friends alike. You won't leave without a warm welcome and a happy belly.

GZ#2: 348 friends, 346 reviews, TWO STARS 3/10/2018

My first purchase there was cheesecake for $8.50 which was expired. Had to go back and ask for money return. There were nice and fast in that. But this store ONLY gets 2 stars. It's sooo expensive. I see same things in other stores much much cheaper. People are desperate because we don't have supermarkets around. Organic tangerines are 2 lbs for $6.99 and I buy the same tangerines in Trader Joe's for 3.99. Their sandwiches cost around $8-9 with some tuna melt- seriously???? Meat and chicken pricing also crazy… GZ#3: 2 friends, 41 reviews, FIVE STARS 11/6/2018

Wow! I am so excited that stores like Green Zebra exist. I think most of us would like to have a healthy lunch option while we are at work, but that often isn't the case. Green Zebra is my go-to spot for lunch and I always leave feeling satisfied and like I spent my money wisely. It also comes in handy for the days when I need one or two items from the store and don't have the time to go all the way to New Seasons. I can't praise Green Zebra enough. Thank you! GZ#4: 94 friends, 3 reviews, FIVE STARS 11/6/2018

They always have tasty treats to get me through the afternoon. The hot bar is delicious. And the staff are always kind and courteous! GZ#5: 4460 friends, 1372 reviews, THREE STARS 8/25/2017

hmmmm

I go here a lot. It's like a block from my apartment, so by default I end up here fairly often grabbing a thing here or there. After six months or so of experiences, I need to downgrade to 3 stars. I mean, they're still good… but A-OK is definitely closer to my feelings than saying I'm a fan.

I still really like the hot bar. In fact I ate lunch there today and just had a huge plate of carnitas and chicken tinga. It was delicious. The problem is that it's so clearly geared

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Validate or Pivot? 9

towards the office crowd that if I come in even at like 6:30 and try and get stuff, it's picked over and won't be replenished the rest of the night. Sucks that it's less of a neighborhood amenity and more of a place for office workers.

The staff is VERY friendly and helpful. They must really enjoy working for this company because they are genuinely pleasant to be around. Says great things about the hiring. Prices are just cray. CRAY I tell you. I almost always sort of wince when I get my total here.

Produce is a mixed bag. They're all organic and local and blah blah blah, but often times it looks worse for the ware. Not everything, mind you. But for example the bananas oftentimes look like they're about ready to turn. Or I've bought cherries that were bad two days later. That being said, I've also bought some of the most delicious peaches I've ever had in my life.

Meat selection is crazy limited. GZ will still see plenty of me. But my enthusiasm has worn off. GZ#6: 383 friends, 565 reviews, FOUR STARS 10/29/2018 I weirdly enjoy checking out grocery stores when on vacation. Even if it is a pretty standard one, you really get a taste (literally AND figuratively, hahaha) for what is popular in that area. Green Zebra, while not exactly specialty, is more on the natural side. It's a cute lil' neighborhood market, and far enough out of the city that there is actually a parking lot AND spaces available. Hurrah!

The store is rather small, and aisles are narrow, but it is not too bad. They had an appreciable amount of wine and beer, bulk staples, and pre-made meals. The produce selection was small, almost disappointingly so, but I picked up two locally grown apples, one of which was a rosy fleshed Pink Pearl, and that basically made my whole vacation. They also had some great chocolate and candy bars.

They were busy around dinner time, and those prepared meals must be quite good, 'cause a lot of people were grabbing 'em. The wait to check out was minimal, the cashier friendly. If I lived nearby it probably wouldn't be my go-to grocery store mostly due to the prices (but also selection is som