Good morning,

Retailers aren't just competing for shoppers anymore. They're competing on what happens before a product ever reaches the shelf.

Case in point: Burlington has opened a 2 million-square-foot automated distribution center in Georgia, complete with 25 miles of conveyor systems, advanced sorting technology, and custom software. The facility is designed to help the off-price retailer move merchandise faster and support plans to open 115 new stores this year.

As retailers expand their footprints, supply chains are becoming a key battleground.

Let’s dive into today’s edition.

Walmart is continuing its push to automate its supply chain, launching another $8 million expansion phase at its distribution center in New Braunfels, Texas, as part of a broader effort to modernize its U.S. warehouse network.

What’s Happening: The project will add new electrical and material-handling equipment to the facility and is expected to be completed in 2027. The investment is part of Walmart's plan to retrofit 23 of its 42 regional distribution centers with automation, with the eventual goal of upgrading the entire network.

AI Ready: The retailer says its next-generation distribution centers use robots, AI and store-level demand data to build "intelligently layered" pallets, allowing store employees to unload trucks in minutes instead of hours.

More than 60% of Walmart's U.S. stores already receive at least some inventory from automated facilities, and the company expects to operate 16 next-generation distribution centers by the end of the year.

Aldi is accelerating its U.S. expansion with a $9 billion investment plan, aiming to grow from roughly 2,600 stores today to 3,200 locations by 2028, with executives ultimately seeing room for more than 4,000 stores nationwide.

Retail Expansion: The German discount grocer is capitalizing on years of food inflation and growing consumer demand for lower-priced groceries. Aldi says it is opening a new store every few days and will soon surpass Kroger in store count. This week, the company opened a flagship location in Manhattan's Times Square.

Small is Big: The retailer's low-cost model is built around small-format stores, a limited assortment of about 2,000 products, and a heavy reliance on private-label brands, which account for nearly 90% of sales. The strategy is helping Aldi gain market share at a pace comparable to Walmart, Costco and Sam's Club, according to Morgan Stanley.

Big Picture: The expansion is already affecting competitors. Morgan Stanley found that a new Aldi store reduces annual sales at nearby grocery rivals by roughly one percentage point within a 10-mile radius. Aldi generated an estimated $30 billion in U.S. revenue last year and continues to grow at a double-digit rate despite sluggish industry-wide food sales.

U.S. retail sales rose 0.9% month over month to $764 billion in May, beating expectations and signaling that consumers continue to spend despite higher fuel prices and inflation pressures linked to the Iran conflict.

Key Details: Sales were up 6.9% year over year, while a core measure that excludes volatile categories such as fuel and automobiles increased 0.7%, suggesting spending strength extended beyond higher gasoline prices. Gas station sales climbed 3.4% during the month.

Cost Offset: Economists attributed part of the resilience to tax refunds from the Trump administration's 2025 budget legislation, which averaged more than $3,500 per return and helped offset the impact of rising living costs. Consumer sentiment also improved in June, though it remains below year-ago levels.

Fair Warning: The data suggests U.S. consumers continue to support economic growth despite inflation reaching 4.2% in May and fuel prices remaining elevated following disruptions linked to the Iran conflict. However, economists warned that spending could slow later in the year as the boost from tax refunds fades.

Amazon could face a lawsuit and potential civil penalties as the U.S. Federal Trade Commission nears the end of an investigation into whether the company misled advertisers about the pricing and operation of its advertising platform.

What’s Happening? The probe is examining whether Amazon adequately disclosed advertising terms, pricing mechanisms and reserve prices used in certain ad auctions. Several state attorneys general are reportedly participating in the investigation, which could be resolved through either a settlement or legal action as early as this summer.

Key Details: The scrutiny highlights the growing importance of Amazon's advertising business, which has become one of the company's fastest-growing and most profitable segments. Regulators are examining whether dominant digital platforms provide sufficient transparency into how advertising inventory is priced and sold.

The investigation follows earlier FTC action against Amazon, including a $2.5 billion settlement related to allegations that the company used deceptive practices to drive Prime subscriptions.

FedEx is changing how it calculates international fuel surcharges, a move that will increase costs for exporters while slightly lowering costs for importers. Starting June 22, the carrier will replace separate export and import fuel surcharge tables with a single rate applied to both.

Higher Prices: The change comes as jet fuel prices remain elevated following disruptions linked to the Iran conflict and the Strait of Hormuz. Under the new structure, export shippers will pay higher fuel fees—roughly $35 more per $1,000 in fuel-applicable transportation charges, according to ShipScience—while importers will see a modest reduction.

Big Picture: The adjustment adds another cost burden for exporters already dealing with volatile transportation expenses. While rival UPS continues to maintain separate fuel surcharge rates for imports and exports, FedEx's move signals that elevated fuel costs are becoming increasingly embedded in international shipping pricing.

Amazon is introducing new listing standards that will require product titles across most categories to be 75 characters or less beginning July 27.

Short and Sweet: The company says shorter titles will improve the mobile shopping experience and ensure key product information is displayed more consistently in search results. Sellers will be able to use a new Item Highlights field to provide additional details about materials, features, and use cases

What’s Next? To help merchants adapt, Amazon has launched AI-powered tools that generate compliant titles and Item Highlights. Sellers can review and edit these recommendations before publishing.

However, listings that remain above the new character limit after the deadline may be automatically updated using Amazon's AI-generated suggestions, with brand owners receiving a 14-day review period before changes take effect.

America's obsession with high-protein foods is colliding with a supply chain bottleneck. Demand for whey protein — a key ingredient in protein bars, shakes, cereals, chips, and other fortified foods — has surged as consumers prioritize protein-rich diets and GLP-1 weight-loss drugs gain popularity.

Protien Problems: Whey Protein Concentrate 80 (WPC80), one of the industry's most widely used ingredients, now sells for more than $13 per pound, nearly 3x higher than a year ago. Some suppliers are already sold out through 2026, while U.S. dairy processors have committed $11 billion toward new capacity and supply chain upgrades through 2028.

Big Picture: The challenge isn't milk supply, it's processing capacity. Converting liquid whey into high-protein concentrates requires specialized filtration and drying infrastructure that takes years to build. Until new facilities come online, food manufacturers face higher ingredient costs, tighter inventories, and growing pressure to find alternative protein sources.

Shoppers referred to retail websites by AI tools such as ChatGPT and Gemini are proving significantly more valuable than traditional online visitors, according to new data from Adobe Analytics.

Key Numbers: In May, AI-generated traffic to retail websites increased 138% year over year, reaching its highest share of total retail visits since Adobe began tracking the data in late 2024. Visitors arriving from AI platforms generated 53% more revenue per visit and converted at a rate 54% higher than shoppers from non-AI sources.

Dwell Time: The data also showed stronger engagement. AI-referred shoppers spent 53% more time on retail websites and viewed more pages per visit than traditional visitors, suggesting they arrive with higher purchase intent.

Big Picture: The findings highlight a growing shift in online shopping behavior, where consumers increasingly use AI assistants for product discovery and recommendations before completing purchases on retailers' websites. For brands, the trend is creating a new incentive to optimize product pages and content so they can be surfaced more effectively by AI platforms.

Kroger reported first-quarter sales of $46.12 billion, topping analyst expectations of $45.47 billion, while maintaining its full-year guidance for identical sales growth of 1% to 2% and earnings of $5.10 to $5.30 per share.

However, adjusted earnings of $1.58 per share narrowly missed estimates, and shares fell about 7% after the company warned that inflationary pressures are expected to intensify in the second half of the year.

Cautious Shopping: The grocer said customers are becoming more selective with spending, leading to more promotional purchases and fewer full-basket shopping trips. To defend market share, Kroger plans to cut prices on thousands of products while continuing investments in private-label brands, promotions and digital capabilities.

Powered by E-commerce: Kroger reported a 19% increase in e-commerce sales during the first quarter. It also achieved profitability in its e-commerce business for the first time, including its retail media operations. The company attributed the improvement to greater use of store-based fulfillment, lower fulfillment costs and continued expansion of its hybrid delivery network.