Sylvain Perrier: Welcome ladies and gentlemen to the Mercatus podcast, Digital Grocer. I’m your host, Sylvain Perrier, President and CEO of Mercatus Technologies. And joining me remotely today, from his home, is Mark Fairhurst, our Senior Director of Marketing. Thanks for joining me, Mark.
Mark Fairhurst: Well, you’re welcome.
Sylvain Perrier: You know, Mark and I are doing…
Mark Fairhurst: You demoted me.
Sylvain Perrier: Did I? Yeah, I did. You’re a Vice President now. I’m so sorry.
Mark Fairhurst: That’s okay.
Sylvain Perrier: Ladies and gentlemen, joining us from his home is Mark Fairhurst, our VP for Marketing. Thank you for joining me, Mark.
Mark Fairhurst: My pleasure. My pleasure. We’re all safe and we’re all healthy.
Sylvain Perrier: We are and we’re doing our part not to, I wouldn’t call it social distancing, I’d call it physical distancing.
Mark Fairhurst: Yeah.
Sylvain Perrier: I happen to be in the office today, and I will say it’s actually, surprisingly enough, it’s a beautiful day in Toronto, even though we’re under a lockdown.
Mark Fairhurst: Yeah, yeah. Gorgeous weather outside.
Sylvain Perrier: Yeah. It’s a strange time, because it’s not only our city that’s under lockdown, it’s our province. And, as well now, I think, Mark, you and I have talked about this, is the inter-provincial connections between Quebec and Ontario are actually closed now.
Mark Fairhurst: Yeah, yeah. It’s unprecedented what’s happening.
Sylvain Perrier: Yeah. And I would suspect that, at some point, our Prime Minister, we don’t have a President, we have a Prime Minister, will likely be invoking what today is called, the Emergency Act. For those of you that are a little bit older, that would have been around in the ’70s, in the Montreal area, or just in the Province of Quebec, would remember the War Measures Act, which was actually put in place by Justin Trudeau’s father, Pierre Elliott Trudeau.
Sylvain Perrier: But nonetheless, positive thoughts, and we send tons of prayers to the frontline emergency medical workers, not just in the city, but all over the world that are just trying to make a difference in people’s lives.
Mark Fairhurst: Yeah, it’s critical.
Sylvain Perrier: It’s super critical, and I think did we just pass, last night, a million cases on the planet?
Mark Fairhurst: Globally, yeah.
Sylvain Perrier: Globally, yeah. It’s just crazy. Let’s go back in time. And when I say, back in time, I’m not talking about 20 years, I’m talking about a few weeks ago.
Mark Fairhurst: It feels like you’re…
Sylvain Perrier: Yeah, where’s my DeLorean, when I need it? March 11th, I was actually driving through the Dakotas. I was coming back from a client visit and I just elected, at the very last minute, not to fly. We had implemented a no-fly policy at the office anyways. I really don’t mind doing the lengthy drives. I was tired. I think I had made it as far, close, to Madison, Wisconsin, at the time. And I’m like, “I’m just going to pull over for the night.” It’s close to nine o’clock and I just remember President Trump was doing an address to the nation. That’s when, just listening to him talk, that’s when it really it me. That what we thought was normal, and Mark you and I got a sense of this, when we’re at NGA in San Diego. That this was going to become an issue.
Sylvain Perrier: President Trump made the bold decision to close the border, not allowing European flights, or people from outside the country from coming in. Americans were allowed to come home, and then, soon after, we ended up closing, a joint decision between Canada and the US, to actually close the longest undefended border on the planet.
Mark Fairhurst: Yeah. I think that was just a few days after you got back.
Sylvain Perrier: Yeah, it was. It actually was, and it was a bit harrowing when I was trying to cross at Windsor, because they weren’t sure if they were going to close the border, was I going to get stuck, and all those things. But that’s when you got a sense that things were going to change. Now, from that moment, so around nine o’clock that night, spilling into Thursday, Friday, and certainly over the weekend, the amount of traffic that we saw on our dot-coms skyrocketed, and sales actually shot up 1200%. We saw a mobile application download increase of 300%. Even yesterday I was checking it. We have some apps that were north of 1500%, in terms of downloads.
Sylvain Perrier: We saw sales go through the roof for all product categories. And the one thing that we did notice, and this is also coming from conversations with existing clients and perspective clients, and, quite frankly, retailers that we don’t even work with, but we have tremendous research relationships with is lack of available gig workers for marketplace solutions, for order picking, order delivering. And this is happening at the same time, I think, was it Sunday? I think it was last Sunday, where some of the gig workers for Instacart started to threaten for a strike. They’re not necessarily getting the support that they need, and maybe that’s right, maybe that’s wrong, I don’t know. I’m just reporting what I’m seeing in the trades. But it made me really think through, if you look at the situation we’re in, is there a way to solve this problem?
Sylvain Perrier: The problem is lack of available resources. Retailers are hiring like crazy. Amazon is trying to hire. Kroger is trying to hire. All of our retailers on the West Coast are trying to hire. And we know, we talk about this quite frequently, is the most expensive component to any eCommerce solution, quite frankly, is going to always be labor. And there is a balancing act between platforms, technology, performance, and order volume. And the people that use to do the picking and packing of your solution to get a positive ROI. And it is achievable, we’ve seen it. But there becomes this interesting tipping point when you get a certain number of transactions per location, or chain wide, quite frankly.
Sylvain Perrier: You’ll hear the pundits in the industry say, “Then it becomes an operational challenge.” Do you need to put in a better picking solution that does wave picking, zone picking? Absolutely, that’s important. Is there a way that you can organize certain stores to be able to facilitate the order and the picking while still supporting the general public? Absolutely, those things can be done. And pre-pandemic, one of the keywords was being spoken in the trades, as well as at various trade shows, and I think the last industry trade show, quite frankly, that may have had any impact would have been NGA, but that keyword was MFCs, micro fulfillment centers. And you go out there, and you start to look at this technology, and it’s quite formidable, and it can do some amazing things.
Sylvain Perrier: To help us understand MFCs, we brought in the cube storage pioneers, AutoStore, great company. Joining us on the phone, from the US, I’m going to mispronounce his last name again. His name is Andrew Bessinger, Benzinger, I apologize for that. He’s the Business Development Manager at AutoStore. Andrew, welcome to our podcast. I’m going to ask you to re-pronounce your last name. I really apologize.
Andrew Benzinger: No, problem. It’s Andrew Benzinger, but thank you for having me. I certainly appreciate the opportunity to connect today.
Sylvain Perrier: Andrew, can you explain to our audience the idea of an MFC?
Andrew Benzinger: A micro fulfillment center, or MFC, as the lot of the industry is calling it, is really a couple different things. The overarching principle is around how do I operate in a smaller facility than a traditional DC. Where the facility can be, whether it’s in a grocery store in a center, in the back of a grocery store, or in a dark store is up for debate based on volume and based on configurations that are needed for the particular application. But the concept is, the driving force is, the customers that are shopping in grocery stores online or in person are trying to get closer to their grocery store. And the grocery store is trying to solve the demand requests, or asks, a couple of different ways. And being able to do that in a one, two, or three hour timeframe is really tough without automation. That is where the micro fulfillment center came to be.
Andrew Benzinger: How do we put automation? How do we put those demands that the customers are asking for closer to the customer and closer to the grocer? As opposed to whether it’s established, or not, but it’s a 200-300,000 square foot facility where they’re doing store replenishment? Now, you just can serve the customers from those large facilities, so how do we get closer to the customer? And that’s where the MFC was really born.
Sylvain Perrier: Wow. Now, AutoStore is not a new company. I went to your website and I think you guys were founded in the mid ’90s. You guys are like the pioneers in this space. Can you share a little bit of the history of the corporation?
Andrew Benzinger: Sure. You’re right, we are the cube store, its pioneers. There’s been a couple of companies that have tried to mimic what we’ve done and that’s a testament to our success. That we have other people trying to do what we’re doing, and having it look like a lot like ours in a number of different ways is certainly a testament that we’re doing the right stuff. We’ve been around for over 22 years, and we were originally a semiconductor distributorship and had a storage issue, like a lot of our clients do initially, and were running out of space to support the growth for all the inventory that’s coming in. And, essentially, we built AutoStore, as you see it today. And, over time, used it, perfected it, and what I think is a really interesting part of the story is that neighbors of ours, in Norway, came and saw the solution five years after it was born and said, “That’s really cool. That would solve a problem of ours, can we get one of those too?”
Andrew Benzinger: We’re like, “Sure, why not? We’ll build you one.” Two years later, someone else came and saw our facility and did the same thing. And we thought, “Maybe we have a business here.” I think one of the reasons I tell that story is it’s a little bit unique. I think it’s a little bit un-American that we’re solving our own problem, as opposed to trying to be a startup company and raise a lot of capital, and really conquer the world as soon as possible. Which, I like, because it says not only does our solution work, but it is reliable enough that it solves our own problem. I think that’s a testament, as well as a characteristic, that you’ll see across all the different aspects of how we service our AutoStores, as well as built it in the guts and the robots themselves.
Sylvain Perrier: When is the right time for a retailer to consider such a solution?
Andrew Benzinger: There’s a lot of different metrics. I think there’s a couple different ways you can look at it. Financially, it’s easy to start getting density, when it comes to 20 to $30 million in sales at a store level, or at a geographic cluster. That’s a metric. Another metric could be 200, 300, 400 orders per store per week, but that really depends on how much of the volume is coming from store pickup versus how much of the volume is going to come through delivery. And most companies in the US have a much stronger pickup than they do delivery, so that’s an easy place to start.
Andrew Benzinger: We’re also seeing companies, when they get to that 2, 3, 400 orders per week range, either they’re doing it themselves, and that’s when they start to feel the stress of scaling, and whether they are having a hard time finding their own employees, or you get to that order volume per week, you start seeing where do we stock these orders? How fast can we turn these around? Where do we get extra employees? Because a lot of the grocery employees that we’re seeing in the industry, at least in the US, there’s a lot of high school and college age workers. And a lot of them don’t have the physical muscle it takes to move a 20, 30, 40 pound tote of groceries. Their mentally is, “Yes, I can be a bagger. Yes, I can be a checkout clerk.” But it’s a little bit different when you’re pushing heavy bulky product, whether they’re partially completed orders, or fully completed orders, so that’s a driver.
Andrew Benzinger: On the other side of the equation, you look at some of the Shipt and the Instacart shoppers, their world, and we’re finding a couple of customers of ours. They’ll come to us saying, “We have a lot of congestion in our aisles.” There’s a lot of people that want to shop in grocery stores today. We want to make sure that we’re not degrading the customer experience for those that still want to come. As much as attention as this eCommerce grocery conversation is getting, while it’s growing exponentially, especially right now, the lion’s share of the sales volume is still from in-store shopping.
Sylvain Perrier: That’s right.
Andrew Benzinger: It gets often overlooked, and it is obvious, but, at the same time, it has to be repeated and then brought up, because it’s a challenge. How do we solve for that? One of the ways that we do is with an MFC is being able to remove most, if not all, of those pickers out of the store entirely, allowing those customers that do want to shop, without green shirts in the store, to have a really positive experience. I mean, think about a number of regional grocers, or even Whole Foods 10 years ago, they had beer taps and glasses of wine walking around the store. Pretty hard to do when you’re bumping into third party shopping groups, or even your own shoppers clogging up the aisles. It’s a long way from that elevated experience that a lot of people are trying to accomplish.
Sylvain Perrier: No, absolutely. What’s an average size? Is this 10,000 square feet? 15,000 square feet?
Andrew Benzinger: It really depends on how much you’re trying to solve for. If you’re trying to solve for 4000, 5000 orders a week, yes, 10,000 or less is certainly no problem. If you’re trying to solve for 10-12000 orders a week in a particular cluster, I don’t think anyone in the industry can do it in 10,000 square feet. It’s just too much volume. That, to me, looks a little bit closer to 14, 15, 16000 square feet. A lot of it depends on how much space you have for routing, and consolidation, and loading the trucks, or loading the gig worker’s car. The automation is a significant portion of the total square footage of the MFC, but it’s not the entire piece.
Sylvain Perrier: Right.
Andrew Benzinger: When I say those numbers, generally, the automation or the AutoStore is going to be about half, to a little bit less than half, around 45, 40% of the square footage, because you need space for receiving pallets of product. You need space for orders that are fully picked and ready to be loaded on the truck or the car. Those types of things. It’s not just the automation. But one of the nice parts about AutoStore is that, because of our density, and being the cube storage pioneers, we’re able to have more product in and more automation in a smaller footprint. And that opens up an unbelievable range of scenarios, whether it’s I can be in a smaller space, or I can offer more product. And just about everyone I’ve ever talked to agrees that if you offer more product, you end up having larger baskets with your customers.
Andrew Benzinger: The difference between offering 10, 20 or even 25,000 SKUs is a lot better with larger baskets for the grocers than offering 8-10,000 SKUs, and AutoStore allows you to do that.
Sylvain Perrier: When you look at a facility, let’s say, 15,000 square feet, maybe 40% of it is the automation. And if you just hone in on that automation piece, how long does it take to set that up? Is it eight months, nine months, 10 months?
Andrew Benzinger: Generally, from purchase order to turnover and make the systems fully up and running, we say, usually, six months. It can be faster than that. It can be slower than that. Depending on how big the system is. But we feel pretty comfortable saying that it’s going to be six months or less in almost all the cases. Especially when you start getting into these smaller systems that are four and 5000 square feet of automation, we can really do less than six months, no problem.
Sylvain Perrier: That’s amazing. Now, when you think of performance, we’re seeing in our own statistics for a really mature, seasoned, personal shopper who knows her store exceptionally well, typically, 32 to 60 seconds to pick a product. I say it’s higher than 32 seconds easily, because the time to get to it and so on. Now, I’ve read numbers that for automated solutions it can be sub 20 seconds. What kind of performance are you guys getting?
Andrew Benzinger: Yeah. I think it just depends. There’s a number of different ways we can format it. But I would say, pretty conservatively, that you can do six seconds to complete the pick. That’s going to depend whether you’re grabbing three or four boxes of Cheerios, because your kids just go nuts on Cheerios, or you’re picking one of each. But, at a high level, I’d say six seconds is really comfortable for us. One of the big drivers around speed that I like to tell is beyond picking. You’ve got receiving, decanting, and slotting, picking the automated product, picking the manual product, consolidation of the orders, and then you’ve got the packing, and the staging, and finally loading vehicles.
Andrew Benzinger: Picking out of the automated is one part of the conversation.
Sylvain Perrier: Right.
Andrew Benzinger: If you get back to supply chain and looking at other warehouses, and consulting, and all those types of things, you start looking at value stream mapping. What are the cycle times? Getting back to your first operations class, probably, in high school, or even college for that matter. As much as I love talking about how fast the AutoStore is, it is one piece of the process.
Sylvain Perrier: Right.
Andrew Benzinger: It is never the bottleneck. And, I think, that’s a piece that not enough grocers have fully learned yet. The difference between going 400, 500, 600 or 700 units per hour per picker is almost irrelevant, because the absolute bottleneck in the process is always going to be the consolidation. Understanding that, yes, we can achieve 500, 600, 650 units or even lines per hour, but we’re finding a lot more companies that are interested in saying, “I’ll sacrifice a little bit of speed, so that I have less people touching the product.”
Andrew Benzinger: As an example, when you’re restocking a grocery store, traditionally, you could have easily a dozen, two dozen, people doing the restocking. How accurate is that quantity? We’re not entirely sure. In an MFC, you could have eight to 12 people touch that product, whether it’s been received, restocked, decanted, picked, even within picking, you could have five or six different people touch it. Whether it’s, is the tote that we’re picking to, is that ready to go? Is it prepped properly? Is it picked to? Is it consolidated? All that kind of stuff. Because you’ve got picking out of the automation in a chill environment, in an ambient environment, but then you have picking in a manual environment. The product is not in the automation, and the chill, as well as the ambient, as well as the frozen.
Andrew Benzinger: So you’ve got, potentially, five different people touching it. Now, we’re finding that quality of accurate orders and customer experience is becoming a big driver for people that actually have done this before. There’s a lot of people that are just getting their foot wet. But for those that are not, they’re saying, “We’ll sacrifice a little bit of speed, so that we can have a better customer experience.” And as interesting as that conversation is, it’s happening a lot more, so it builds on my point that, as fast as picking is, and as interesting as it is, what’s the goal here? The goal is to get your product, which is your groceries, to your customers, complete, and as fast as possible. The goal is not how fast can you pick?
Sylvain Perrier: Right.
Andrew Benzinger: And that’s a huge disconnect. We’re rooted in supply chain. We’ve been doing this for 22 years. We’ve got 450 installations globally. We’ve been doing this a long time. We know what it takes to have a successful implementation, and a successful experience, so that customers are ordering a second system at a second site, or in another country, and those types of things. We’ve done all this before, and what I think is really cool, we’re not actually changing a lot, so our robots are the same robots, whether you’re an eCommerce company or a grocery company. We’re not making massive modifications, so we can take all of those 22 years of experience with us and bring it into the grocery. Which, there are nuances to grocery, and we know them, and we have certainly learned them. But we’re not a two year old startup company that is trying to put our first, second or third site out there.
Andrew Benzinger: There’s a expertise from an integration perspective and an entire, “How do I run a best in class micro fulfillment center for groceries,” because we’re trying to get these orders out complete and as fast as possible.
Sylvain Perrier: When you’re thinking in terms of an ROI, is this something, again, there’s so many variables to an ROI, but if you take an average installation, and I wouldn’t know what average is, and maybe that actually doesn’t exist. Is this an 18 month, 24 month? What does that look like?
Andrew Benzinger: In the projects that we’ve done so far, we’re really seeing right around that two year mark. Call it 24 to 27, 28 months. Almost everything in the grocery side is less than three years that we’ve seen so far. But, at the same time, there’s a whole host of factors. You’ve got to look at what’s the benefit of the logistics cost that you have? Which is a huge cost driver, major cost driver, in that final mile.
Sylvain Perrier: Yeah.
Andrew Benzinger: Are you driving the product from a hub and spoke model? Because there’s a logistics cost to delivering to the store a couple times a day, and are you going to support five stores, are they five or 10 miles away, or are they 30 miles away? All these different things drive into that. The same way that labor costs drive. In a warehouse, you typically see 12 to $18 headcount costs, not even fully loaded with benefits, et cetera. And, typically, in a grocery store, you see a lot less than that, sometimes it’s $8 an hour, raring in the teens, as well. Net of all of that, we’re seeing that just over two year mark, when it comes to an ROI.
Andrew Benzinger: But having said that, the growth that we’re seeing, especially right now with the whole virus issue, is crazy. I mean, the volumes are through the roof, and we’re seeing a few grocery companies, as early as last year, plan for three, five and 10% growth, and they hit that in the first day of March, which is pretty crazy. I think we’re also really well positioned, from a flexibility perspective, that, as you grow, we can grow with you.
Sylvain Perrier: Right.
Andrew Benzinger: And that’s a huge proponent that you need to have, because I don’t think anyone really knows how big this market is going to be.
Sylvain Perrier: Right, right.
Andrew Benzinger: I think everyone knows it’s going to be really big, and we don’t know how fast we’re going to get to that big market.
Sylvain Perrier: Yeah, right. I would agree.
Andrew Benzinger: Those are two… How fast and how big are great questions, and I think no one will argue that it’s moving in the right, positive, direction.
Sylvain Perrier: Yeah, I would agree.
Andrew Benzinger: And AutoStore can really scale with you. It is not a one or two year growth plan for an expansion. We can very easily expand in a number of single digit weeks, whether it’s more storage, offer more SKUs, and more days inventory on hand, or more speed. And speed can be more robots for the actual picking, or speed can be adding a second station, or a third station for more orders out for that same hour. We’re the most flexible solution out there. And I think it’s, especially the times right now, flexibility is huge.
Sylvain Perrier: Absolutely, absolutely. Hypothetically speaking, if you were coming to Toronto to set up the system, and obviously support and maintenance is a component of this, do you train someone local, or do you come in and implement labor in that market to support the retailer?
Andrew Benzinger: Yeah. We train them. We found that there’s not enough money to go around. There’s not enough margin in this industry to pay six or seven different mouths. It’s just not there. So we train the grocer themselves how to operate it, how to run it, and how to maintain it. We say that a supervisor, or I like to call them, robot doctors, they can manage well over 100 robots. And in these MFCs that we’re seeing, the quantity of robots in that system is always less. We’ll just use a nice round number of 50. What I’m saying is, from a maintenance perspective, one person, in half or a third of their job, can manage the whole system. Now, other technologies aren’t nearly as reliable as we are. Our reliability numbers, our up time is 99.7%, no one’s even close to that.
Andrew Benzinger: That allows us to not have full-time staff 24/7 on site, with an AutoStore logo badge, making sure this thing actually works, because we’ve been doing this for 22 years and we know it works. Our customers know that it works. There’s preventative maintenance that you have to do, just like owning a car. You got make sure it… If you want it to run for a decade, or even two decades, like our AutoStores do, you got to take care of it. But taking care of it is not a full-time job, it is a part-time job. From a technical perspective, it takes very, very little. I say in the warehouse space, if you have someone who can repair a conveyor, just about every warehouse does, they’re over qualified, after our three day training, to do all the maintenance that they have to do for an AutoStore.
Sylvain Perrier: That’s amazing.
Andrew Benzinger: Which is somewhere between funny, and comical, and awesome, but it’s a testament to the Norwegian way of thinking, and that’s how we’re rooted. It’s simplicity and it’s redundancy. How do we make sure this works? And it gets back to my first point. We wanted this to work for ourselves. That’s a huge reason of why it’s so simple. We’re not just trying to sell this stuff. We know that it works for us, and that’s why it is so reliable. If it was anything less than our 99.7% up time metric, we would continually have to improve that. Because, if it’s not good enough for us, it’s not good enough for anybody else.
Sylvain Perrier: Well said. Andrew, it’s been a pleasure having you on the show. I’m completely blown away by the story and what you guys are doing. How can people get a hold of you?
Andrew Benzinger: Sure. Our website is AutoStore. We’ve got a website in about eight different languages and we operate in over 30 countries, so I think they can get a hold of us that way. I’ll provide my email address and phone number, as well.
Sylvain Perrier: Perfect. Mark, are you still safe?
Mark Fairhurst: I’m still safe. I’m still rooted in the basement, yeah.
Sylvain Perrier: Thank you. I appreciate that.
Mark Fairhurst: That was great. Thanks, Andrew.
Andrew Benzinger: Wonderful. Thank you for having me. I certainly appreciate it. And, hopefully, we can get back to a new normal as soon as possible. I’m ready to travel again.
Mark Fairhurst: Amen.
Sylvain Perrier: Absolutely. Mark, how do people get a hold of us?
Mark Fairhurst: Website www.mercatus.com. All the contact points are there. And then, also on the podcast page, direct links to you, me, and we’ll post Andrew’s email, as well.
Sylvain Perrier: Perfect. That’s great. Ladies and gentlemen, thank you for listening to our podcast, and don’t forget to keep your ear to the ground for our next episode, which I’m sure it will be soon be made available to you guys. Peace.