Sylvain Perrier: Ladies and gentlemen, welcome to Mercatus’ podcast Digital Grocer, episode 26, season three. I’m your host, Sylvain Perrier, president and CEO of Mercatus Technologies. And joining me here at NRF 2020 is Mark Fairhurst, senior director of marketing.
Mark Fairhurst: Hello, everyone.
Sylvain Perrier: And this is the second day of NRF.
Mark Fairhurst: Second day, yes.
Sylvain Perrier: It doesn’t feel like a Monday.
Mark Fairhurst: No, no. Actually, I’m lost in a time vortex.
Sylvain Perrier: It actually feels like I’ve fallen into this dirty vortex of retail. Well, I just summed up 25 years of my life. It’s incredible how time flies, right when you’re here in New York city?
Mark Fairhurst: Well, yesterday, that was the Sunday. The first day.
Sylvain Perrier: It was.
Mark Fairhurst: It was over in a blink.
Sylvain Perrier: In a blink, yeah.
Mark Fairhurst: It was crazy here at the Mercatus booth, and we have our friends over from the UK, Spoon Guru, demonstrating their stuff, which is some pretty cool AI technology, which I think is pretty neat.
Mark Fairhurst: We’ve had a bunch of retailers drop by. We had also a bunch of European retailers.
Sylvain Perrier: Monday feels a lot busier than the opening day.
Mark Fairhurst: Well, just the traffic getting here, it was nice.
Sylvain Perrier: Yeah. I went upstairs and we’re booth 1418 down first level. Door 1C, as Mark would say, I think.
Mark Fairhurst: I’m just helping guide the masses.
Sylvain Perrier: I know. You’re like a girl guide. I’m not sure what that means.
Mark Fairhurst: I would say Boy Scout.
Sylvain Perrier: Boy scout, but anyway, but I think the blue uniform would look better on you.
Mark Fairhurst: That’s the Mercatus colors.
Sylvain Perrier: And RF is going to be interesting this year. It’s one of these shows that I don’t think is going to die out anytime soon. You know, it’s still a staple in this industry. There’s a lot of good stuff about hardware. There’s a lot of technology. Seems upstairs it’s still all about robotics. And when we talked about that yesterday on the podcast. Yesterday, podcast was amazing. We had Ron Bonacci, VP of advertising and marketing from Weis Markets talk about some amazing stuff in terms of, if you’re going to jump in as a retailer into the world of e-commerce, things that you should be looking out for as a retailer.
Sylvain Perrier: Great advice. For those of you who haven’t listened to it, I would suggest that you tune into it. So to talk a little bit more about what’s going to transpire into 2020 and what’s what’s happening in the industry. You know this space here, most people would say it doesn’t move as fast as what they would like it to be, but the reality is when there are moves they are quite earth-shattering.
Sylvain Perrier: So joining us today in the booth is Kevin Coupe, who is a speaker, author and video producer and a content guy for MorningNewsBeat.com. If you are not paying attention to that website, I don’t know, you guys are missing out. I think it’s one of those kind of golden nuggets of information that really cuts through the BS that you see in a lot of the editorial content in the industry and just gets to the facts. And Kevin, welcome to the show.
Kevin Coupe: Thank you. I’m going to put “Cuts through the BS” on my business card.
Sylvain Perrier: That’s great. Also joining us is the CEO of Replenium and the former VP of consumables at Amazon, Tom Furphy. Thank you for joining.
Tom Furphy: Thanks for having me.
Sylvain Perrier: Great. So Tom, can you refresh our listeners’ memory? What is Replenium?
Tom Furphy: So Replenium is an auto replenishment platform. Amazon, and you hear this quote, “We’re not in the business of selling things. We’re in the business of helping people buy things.” And we had huge success at Amazon and Subscribe & Save and in building Dash and predictive replenishment and those things. And shoppers really, I mean most of our CPG volume goes through those capabilities.
Tom Furphy: And so after years of doing it at Amazon, we have run a venture fund up in Seattle and one of the things we funded was, was building an open replenishment platform for any other retailer or any brand to use. And so we’re partnering with a bunch of retailers. We’re partnering with Mercatus and really excited to bring those capabilities to customers.
Sylvain Perrier: Now, Tom, you do so many different things out there in the industry and Replenium I think is one of many things that you… Can you share with the audience what are the other stuff that you do?
Tom Furphy: Yeah, and I apologize. A lot of talking last couple days. So my voice is a little scratchy, but we’ll go with it. Yeah. So, the perspective on the industry that we had and grew while we were at Amazon was pretty interesting. We were this disruptor for lack of a better term, but we could see that we were really going to become something and as Amazon becomes a bigger part of shopper’s lives and is more kind of impactful in retail overall, we said, “We’re really creating an investible opportunity.”
Tom Furphy: So we left Amazon with a thesis that says, “Someday Amazon is going to be 20, 25% of all retail.” And when it is, that creates investible opportunities both in helping the world work with and through Amazon and also helping the rest of the world either hedge against or compete against reliance on Amazon. So we started a venture fund that invests along that thesis. We invest on our pro-Amazon side. We have a big agency called Ideoclick and we manage about $3 billion in Amazon sales. Couple hundred manufacturer clients.
Tom Furphy: We spend way into the nine figures in marketing on Amazon. Every year. And so that’s kind of that side of the thesis. And then the other side of the thesis is building enabling technologies to help the world compete against Amazon in an Amazon world. So Replenium fits into that. We had a company called BevyUp that was basically an early clientele-ing type of solution that Nordstrom ended up buying and a number of other capabilities around that.
Sylvain Perrier: Great. That’s amazing. And Kevin, let’s talk about…
Kevin Coupe: I haven’t done anything nearly as impressive.
Tom Furphy: Oh, please.
Kevin Coupe: I would be an ink-stained wretch in an earlier time. Some people will tell you I’m still a wretch.
Sylvain Perrier: So talk to me. How do you see 2019 wrap up in terms of what happened in retail? Like the big moments for you.
Kevin Coupe: 2019, I got to be honest with you. We’re recording this on what, it’s the 13th of January. And 2019 seems like five years, doesn’t it?
Sylvain Perrier: Yeah.
Kevin Coupe: And you know this is the case because I don’t know about you guys, but for usually about a month after the new year, I’m still writing the previous year. Yeah. And I switched right into 2020 without any problem at all. And it’s like 2019 was, I don’t even remember what happened in 2019. Part of the problem, what I do is, I’ve been writing this blog for 18 years, right? So I’ve been writing basically five days a week, 46, 47, 48 weeks a year, for 18 years.
Kevin Coupe: I don’t remember what I had for breakfast yesterday, much less, what happened in 2019. But I think, and this won’t be of any surprise to anybody who knows Tom and knows that he actually writes. We do a thing on MorningNewsBeat all the time and have done a bunch of speeches together and stuff, is that I’m totally in sync with where Tom sees the world going. I mean the notion of helping companies compete with Amazon as well as against Amazon. I mean that is a sweet spot as you can get.
Kevin Coupe: I mean for me, and this certainly ties into what you guys are doing, which may be why I’m on your podcast. The notion of being able to be more personal in how you interact with your customer is huge to me. And I do think that to some degree that’s where we see things going, right? That people are beginning to understand, not everybody, but people in companies are beginning to understand that the consumer is not something that can be commoditized. And that you need to personalize that relationship as best you can. Which means being very careful. It seems to me about figuring out who your partners are, not outsourcing valuable relationships. We could probably do a couple of hours I’m sure on that subject.
Sylvain Perrier: I think we have.
Kevin Coupe: And so I think you’re starting to see some of that at the same time as you’re seeing I think certain market realities take place. One of the stories that took place, I’m going to be honest with you, I don’t remember if it happened in beginning 2020 or the end of 2019. But the sale of New Seasons to the Korean company, that South Korean company that also owns-
Mark Fairhurst: This is the Oregon-based Natural Grocers?
Kevin Coupe: Yeah, Natural Grocers. 13,14 stores sold to the same company that owns Bristol Farms, Met Market. Right? To me, that tells us something about where the world was going to go. I think you’re starting to see it already and you’re going to see more mergers and acquisitions of that sort where smaller companies that simply are not capable, are not equipped. Maybe creatively, maybe financially, maybe infra structurally, if that’s a word, to compete in the world that Tom is describing our finding, “Okay, if we’re going to stay in business, we have to find the right partners. We have to find the right alliances, and maybe change our ownership package infra structurally be able to make that work.”
Mark Fairhurst: Yeah. Well that’s interesting. That’s synonymous with a Canadian retailer called Farm Boy headquartered out of Ottawa. Phenomenal brand, started by a bunch of brothers out of Cornwall, Ontario. Super obsessive about fresh produce. I think in the Ottawa region, they operated 20-something locations and then they brought in a CEO, I think he was former president of Giant Tiger. He brought in US capital. And with that US capital, they actually started to expand out and then to really go big, they sold themselves to Sobeys.
Mark Fairhurst: And you know, Sobeys, credit to them because I would say they didn’t do so well in the acquisition of Safeway out of Western Canada in terms of what they did with it. But the beauty is I think the new CEO learned a valuable lesson and has not interfered with Farm Boy. But he’s giving the resources that they need.
Kevin Coupe: To grow and invest in offer a differentiated experience.
Mark Fairhurst: Yeah. And I think, Kevin, you raised a good point. I think some retailers have not bounced back out of the recession of ’08, even this late in the game.
Kevin Coupe: Well, they’re in big trouble if they haven’t because we’re going to have another one probably. I mean, some CEOs think we’ll have one this year.
Sylvain Perrier: They’re pretty negative, yeah.
Kevin Coupe: But whether it happens this year or next year or the year after that, recession is not if, it’s when. If you haven’t bounced back from the last recession, if there’s another one you’re in big trouble, and this is to me is one of the reasons that the retailers that that understand that they need to forge as many connections to their customers that won’t be interrupted, can’t be disrupted or are less likely to be disrupted because it always can happen.
Kevin Coupe: They’re the ones who are going to be successful because they’re going to create relationships that are going to be sustained even when there are stresses. I’m the guy here who doesn’t have a product other than my words, so I can pump you both guys back up. But that’s the magic of Replenium, right? And I say this as being somebody who is a big Subscribe & Save customer. The items I buy at Subscribe & Save every month that we get shipped to us, I’m never going to buy those in a supermarket again. Right?
Kevin Coupe: So if a supermarket or a drugstore or Weber is able to create those connections in a way using Replenium, then suddenly you’ve got something that’s not just transactional. And maybe that’s the case. Maybe the key is retailers, the smart ones, the ones that are going to survive, are going to be the ones who were not thinking transactionally. They’re thinking about relationships.
Tom Furphy: And solving problems.
Kevin Coupe: Thinking about margin, trying to figure out where are the margin-friendly areas they can be as opposed to getting to areas where I can make a splash but I’m not going to make any money. Right?
Sylvain Perrier: Well smart retailers will understand that. They’ll understand there’s a balance between customer centricity, right? Which is, near-standing, what’s transactional and commoditized and having the right technology to be able to take that out of the way.
Tom Furphy: Take it out of the way, just have it be done.
Sylvain Perrier: And then customer-centricity means enhancing discoverability. And that’s where your AI models come in. Right? And we talk about shrinking the store to the size of one aisle and making that much easier. And I think the reality is not every retailer, I don’t care where you are on this planet, but I don’t think they fully understand customer-centricity just yet, right? Because they think digital is just an adjunct to what they do on a day-to-day basis, that it doesn’t have a leg to stand on its own. And that’s a big challenge. Don’t you find that to be the case?
Tom Furphy: Yeah. I think they’ve really been kind of store-centric and they’ve been operations-centric. Because really, the challenge has been, how do I build my supply chain? How do I configure my store? How do I run my store such that I’m able to yield that 3% net margin and be okay. And that’s hard. And that takes a lot of focus. But you run the risk of taking that focus away from the customer. And the customer-centricity is so liberating. I’m fortunate to have worked for both Wegmans and for Amazon. And, arguably, two of the most customer-centric retailers.
Mark Fairhurst: Intense. Wegmans is intense and they get it.
Tom Furphy: Right? Yeah, they get it. And when you really do focus on the customer, when you have that tunnel vision to, how do I help her or help him in their daily lives, you can rationalize the experience, then, from there. And it’s so logical. And Amazon was very much the same way. Different environment. But customer-centricity, very simple. And when you start to think about, do you really want, in the case of Replenium, as an example, do you really want to force the customer to walk up and down a bunch of aisles? Or if you’re shopping online, to go through their past purchases or search and browse everywhere and spend all that time for these things that they know they’re going to get.
Tom Furphy: You know when you’re going to run out of toothpaste. You know when you’re going to run out of toilet paper. You use the same deodorant all the time. You can add some discoverability and variability and switch that stuff up, but don’t ask the customer to spend that time, take that 15, 20 minutes that they save and show them some new products. You know, and discovering. It’s such a richer experience.
Sylvain Perrier: Glad you said that. And you said a couple of things that really jogged something for me. We sometimes talk about this at the office. It’s very difficult, even as a tech partner to retailers, to innovate technology with the customer continuously in mind. Because you get pulled into IT conversations, right? And those IT conversations can get pretty brutal because you just don’t talk about the customer. Then it’s like, “Well, let’s see if we can fix this for the customer if we can.” We get dragged into operational conversations and suddenly, and even in the retailer’s mind, how is this going to enhance the customer’s experience with us?
Sylvain Perrier: And we ask the question, “How is it going to help us as a retailer make money?” And those questions are rarely, rarely asked. In fact, I find they’re more asked out of European retailers. We’ve had some interactions with a couple of European retailers and IT takes a bit of a backseat to the marketing team in Europe.
Tom Furphy: That’s not a bad thing.
Sylvain Perrier: In that case. Well, I think that’s a great thing. When you were at Amazon, you guys did, you guys were fantastic in the back end, amazing in the front end. Was the conversation continuously customer-centric or was it, you’re trying to strike a balance with that?
Tom Furphy: Well I think it starts with being customer-centric, but then in serving the customer, you’re always looking for ways that you can drive efficiencies, take cost out of the system, right? So you do a lot of looking kind of all the way back up, be it technology, be it supply chain. You do a lot of looking back from there because if you’re able to reduce costs, then you’re able to reduce prices. You’re able to be more efficient, more effective. You can lean into things like same day, next day delivery and all that because you can find those pockets of margins.
Tom Furphy: So I think in any retailer today, too. Focus on the customer and the magic is like a lot of the technology solutions today, they’re less expensive than the old enterprise world, right? You have the advantage of a retailer, you have all this R&D money that we as entrepreneurs and our investors put into this stuff so you don’t have to do it. The technology delivers a better customer experience. And it delivers a ton of monetization throughout it as well.
Tom Furphy: And it’s not monetization such that it detracts from the customer experience. It can actually improve the customer experience. Right. So building in replenishment, brands will pay for that. Gladly. And the customer gets value from that. You guys with what you’re doing in personalization and the ability to put thoughtful advertising messages throughout the experience. Done right, that actually makes the shopping experience better. And it’s monetized and it drops to your bottom line.
Tom Furphy: So it really can work.
Kevin Coupe: A metaphor from an earlier life. So I used to run a video program called Supermarket Insights. It was a regular video program about the industry. And we did them, for a time, monthly. Feed used to go out on VHS cassettes. That tells you how long ago it was. So I used to find myself in supermarkets at like 7:00 AM with a crew getting ready because we were going to shoot from like eight to four and this is a whole film crew. And inevitably when most supermarkets, when you’d get there at 7:00 in the morning, if you went into the deli, they would have chickens on the rotisserie starting to cook. Now you know by the time that anybody would came into the store to buy chicken, they were going to be inedible.
Kevin Coupe: But people would put them on because when the guy comes in first thing morning-
Tom Furphy: That’s what we do.
Kevin Coupe: That’s the processes right? That’s what we do. And that to me is a terrific metaphor. Sad, but terrific metaphor for how so much of the industry works, right? Oh we do it because we’ve always done it this way. We put them on, we’re efficient. We do that. We move on to the next thing, not thinking about the edibility of the product. That’s why so many chains don’t have fresh food that’s particularly good in food service. It’s why they have so many out-of-stocks. It’s why they have not created relationships with their customers using a smart e-commerce program and a smart replenishment program. They just don’t get it. The question I find myself asking people more and more is, “Is it they don’t get it or they don’t know how to do it?”
Kevin Coupe: And I’m not even sure what the answer is anymore.
Mark Fairhurst: Yeah, that’s the question I have. What is the impetus for making that change? Is it new blood from outside? Is it competitive market threat? I mean, what’s the roadblock at the executive level?
Sylvain Perrier: Well, I think it’s about being self-aware and admitting you just don’t know. And you’ve got to have tons of humility. You know, we are seeing CEOs that get that, that are prepared to bring the right people into their business to be able to do that. But more often than not, and I hate to say this. We talk about this in our executive circles. You hire a C player, they’ll hire a D player. And then you suddenly you’re mediocre at everything and you just don’t know how to dig yourself out of the hole. Right?
Mark Fairhurst: That danger about quicksand, the more you struggle, the more you sink. That’s the harsh reality.
Sylvain Perrier: I want to get you guys an opinion on something here. Top of the week, we were in studio here in New York at MouthMedia. We were interviewing Rick Watson. We were talking about the key things that happened at the end of 2019, right? So FedEx decides to bolt out of the Amazon Last Mile delivery service. And then because of some issues that happened with some quality at FedEx, Amazon decided to warn its sellers to say, “Hey,” barred them, actually, from using FedEx for delivery. And so we went back and forth and said, “A, was Amazon ready for this? Two, did FedEx really underestimate Amazon in their knowledge and what they can do?” And then I threw a question out to Rick and I said, “Is there a chance what Amazon is doing today was building out its own fleet. Could they eventually create their own delivery service that can be used for everything?” That’s my first question.
Tom Furphy: Absolutely. You watch what Amazon’s done over the years, they’re willing to partner. But I also say look back at the history of great Amazon partnerships and there’s none, right? I mean ultimately they’ll learn from the partner, they’ll push the partner along the way. But ultimately it’s about better cost control, better control of the experience and they end up adopting these things. And I think when you look at what they did with a technology stack and that became AWS. You look what they did with logistics and their own fulfillment and that’s become a FBA, Fulfillment by Amazon. And so I think that you’re absolutely going to see them become their own independent freight carrier carrying things that are beyond stuff you buy from Amazon.
Kevin Coupe: The question is in will they or can they, it’s how fast will they be up and running?
Mark Fairhurst: So let me ask all of you guys a question. I agree with everything you just said, Tom. My only caveat is, and maybe they don’t worry about it, maybe it’s baked in. Do they worry about which step is going to be the step too far that’s going to get them in the anti-trust trouble? If suddenly they are perceived… Part of the whole discussion is that Scott Galloway came out and he’s predicting that FedEx could be bought by Walmart. He thinks that would make a lot of sense. But if FedEx suddenly is no longer an independent entity, is that the move that creates even more of a groundswell in Washington to say, “These guys got to be broken up.”
Mark Fairhurst: No.
Kevin Coupe: You don’t think so?
Mark Fairhurst: When you have other companies like TForce that do delivery, they’re spread over across the United States and North America. They’re actually owned by a holding company out of Canada. You have UPS. I think if it was UPS, that would mean trouble. I think the government would react. I think the reality is if you look at FedEx strength, it’s in their whole airplanes’ delivery. It’s not the ground side. That’s probably trivial on their balance sheet.
Tom Furphy: It’s expensive, too.
Mark Fairhurst: And it’s expensive. Right? And their market cap is just a little north of 40 billion. I’m not sure if Walmart would know how to run a business like that. I think if I was the Oracle of Omaha, I think they’re sitting on north of 80 billion in cash right now. They could just buy it and they’d still have money to play with and they would know what to do with it. But I think for FedEx to change and to allow an acquisition, you’ve got to either ditch that CEO, he’s got to go, he’s got to go. He’s not of that mindset. Right. Who else could buy them?
Tom Furphy: He had mentioned Shopify, and again, that’d be more of a merger. That could be interesting. But an open source, competitive platform, Amazon.
Sylvain Perrier: It’s strange when you look at Shopify’s financial statements, the money is made through their credit card transactions.
Tom Furphy: That makes sense.
Sylvain Perrier: That’s a brilliant business model, but I haven’t looked at their last numbers that have come out in terms of their shrink. In terms of number of users of the platform. I’m surprised Shopify has jumped into our space. And I know some groceries.
Tom Furphy: Into groceries.
Sylvain Perrier: Yeah, and I know some grocers have approached them, but they’re kind of staying away from the large enterprise play. The configuration and customization and stuff like that.
Mark Fairhurst: Shopify Plus is aiming more for the apparel and to HB & A….
Sylvain Perrier: Well, yeah for them-
Tom Furphy: It’s pretty close.
Sylvain Perrier: Better margin, right? Higher transaction cost.
Kevin Coupe: I think your argument against it being an antitrust issue is a logical one. I would only say Washington is not always logical. These are emotional things. The weird thing is the whole idea of breaking up the Amazons, the Facebooks, the Googles of the world. That is a conversation that is taking place in both ends of the political spectrum and you could find a not necessarily logical groundswell of support. Because after all, most of the people in Washington their password is “password,” so…
Sylvain Perrier: Right. Or, 123456.
Kevin Coupe: They go on the Facebook.
Sylvain Perrier: Yeah, I think-
Kevin Coupe: I got a Google machine.
Mark Fairhurst: I think if Washington right now wasn’t dealing with the slowdown in trade, right, which is one of the economical drivers, impeachment, the China issue, Iran and something made a big stink about this, it would affect consumers. Maybe Washington would take it up, but I think the narrative’s just not there for them to jump into it at this point, but we’ll see. I mean, who’s going to buy them out? I don’t know. It wouldn’t be an easy acquisition. Cash is easy to wire, but then you’ve got to run the business. And then you got to rescue it. And FedEx is a bit of a bit of a pickle right now. My sense of it, right,
Tom Furphy: I saw a stat, I don’t remember where I saw it, but, and it was either December or all of Q4 raw package volume delivered in the US, Amazon was more than FedEx. The total volume delivered.
Mark Fairhurst: That’s insane.
Tom Furphy: But if you think about it, I think about my own neighborhood. If I watch the trucks that come up and down my street during the day, it’s Amazon. Probably total is the same as the other carriers combined on our street. We have an Amazon DSP provider, probably is on our street four or five times a day.
Mark Fairhurst: It would be the same for us? And I live north of Toronto and it’d be the exact same and then it’s quickly followed by UPS in that case. And my understanding is the way Amazon works for delivery, they bid it out if it’s not their own fleet. Right. So they bid it out. Which I’m not surprised.
Sylvain Perrier: So gentlemen, I want to say thank you so much for joining our show. I really appreciate it. Tom, if people want to get a hold of you. How did they do that?
Tom Furphy: That’s a good question. They can get a hold of us at [email protected]. And I am [email protected].
Sylvain Perrier: Perfect. Thank you. And Kevin, yourself?
Kevin Coupe: And I hope everybody will go on MorningNewsBeat.com and I’m easily reachable at [email protected].
Sylvain Perrier: Awesome. Thank you. And Mark, I always ask you this question at the end of every show: How do people get a hold of us?
Mark Fairhurst: It would be amazing if I flubbed it, right?
Sylvain Perrier: It would be amazing. We’d have to edit it out.
Mark Fairhurst: www.mercatus.com.
Sylvain Perrier: Perfect. Thank you folks. Thank you so much. And don’t forget to watch out for our next episode. That will be recorded later today here at NRF with Mr. Ed Wong, who is the CIO of Smart & Final. Thank you.