Sylvain Perrier: Welcome ladies and gentlemen to the Mercatus Podcast, Digital Grocer, Episode 22. I’m your host, Sylvain Perrier, President and CEO of Mercatus Technologies. And joining me in the studio today is Mercatus’ very own Senior Director of Marketing, Mark Fairhurst.
Mark Fairhurst: Hey everyone.
Sylvain Perrier: And at the board is Kevin Glen.
Kevin Glen: Hey, how’s it going?
Sylvain Perrier: I can’t believe it’s actually already December, and we’re literally four weeks away from Christmas.
Mark Fairhurst: I think it’s four weeks today.
Sylvain Perrier: Four weeks today.
Mark Fairhurst: Yep.
Sylvain Perrier: And NRF is just around the corner right after that. And in our last podcast, Mark, we talked to Rob Christian who’s the CEO of ShopHero.
Mark Fairhurst: ShopHero. That’s right.
Sylvain Perrier: It’s incredible the amount of outreach I got because of that episode. A lot of the questions were, people were really surprised that we’d actually go ahead and interview what is a perceived competitor in this space.
Mark Fairhurst: Yeah, I mean I think a lot of people misunderstand what the purpose is behind this podcast. Anyone who’s heard you speak is, we’re almost embarrassed to talk about us, it’s more about education and informing. And I think having Rob on the show was emblematic of that approach and he was genuinely touched for the invite.
Sylvain Perrier: Yeah. And it just goes back to what I said in the show, at the intro of that episode, which was, it’s really about helping retailers solve problems more than anything, right? So big shout out to Rob for joining us on that episode. I got to tell you this month, November has been crazy, we’re literally on the tip of the US Thanksgiving season. Spoke last week at the Canadian Grocer Association, which was amazing.
Mark Fairhurst: That was unexpected. First of all, to be invited out of the blue, and then to receive such a warm welcome from the audience. I think we had over 300-
Sylvain Perrier: 96?
Mark Fairhurst: Yeah, retailers and-
Sylvain Perrier: That’s a precise number. 96 and a half.
Mark Fairhurst: Retailers and CPGs in the room, it was a good event.
Sylvain Perrier: Yeah, we met some really cool retailers, and some retailers I actually didn’t even know were out there in the Canadian landscape. But I got to tell you, if you think November was busy, December is going to be even more crazy, we have a lot of stuff coming up at Barclays in New York, then I’m off to LA for a bunch of stuff that’s going on out there, so it’s pretty amazing. Mark, did you see the news of Loblaws this week announcing their marketplace strategy?
Mark Fairhurst: Huge news.
Sylvain Perrier: It’s massive.
Mark Fairhurst: And they were working on it for the last 12 to 18 months.
Sylvain Perrier: Yeah, it’s unclear if they’re working with a partner, or like a Miracle or someone else, but considering that Loblaws is an SAP shop, traditionally I would suspect that Miracle is probably involved. Kudos on them, this goes back to what you and I have been talking about for the last few years, which is the whole reverse Amazon model, why wouldn’t retailers that have an extremely high household penetration rate not do the exact same thing.
Mark Fairhurst: Right, they’ve already got the eyeballs.
Sylvain Perrier: 100%.
Mark Fairhurst: Now, how do you get a different product assortment in front of that audience?
Sylvain Perrier: Now, we also saw Amazon make a massive announcement that they’re going to be opening their grocery stores in the California market. Any sense what that may look like?
Mark Fairhurst: I think a lot of the conjecture is that it’ll be about 30 to 40,000 square feet. They’re all saying it’s going to be cashier-less, using some of their GO technology. I also think some of the analysts are anticipating that it will be a physical format internally, so broken into a vertical elevation with different elements within the stores.
Sylvain Perrier: It’ll be interesting to see what happens. I think they’ve already pegged the one location, it’s in a suburb of LA, hopefully we will see it soon. I don’t think they’ve made a formal announcement when we can expect it in 2020. Now, a few weeks ago, we did something pretty cool with our friends over at Radius Networks, they hosted an amazing webinar along with Raley’s, Google and Shipt, hosted by Jeff Baskin.
Sylvain Perrier: Jeff is just such a gentleman, and it was really cool, we talked about emerging technology and innovation predominantly in grocery retail, and we went specifically after how to make omni-channel successful and how to really compete against Amazon and Walmart. Now during the webinar, and this was neat, some of the standard advice came from Raley’s predominant player in the California market, just amazing stories, one of my brothers lived on Nob Hill in San Francisco. I got to visit some of their locations in and around town. He is always blown away by the familiarity that it had and the warmness of the associates.
Sylvain Perrier: So we figured today would be really cool to dig a little bit deeper into some of the subjects that were raised during the webinar, so we’ve asked Zac Wilson from Raley’s to join us now. For those of you who don’t know who Zac is, he’s been with Raley’s for almost 10 years, in fact, I think a 9.6 years with Raley’s. He is the eCommerce manager, and Zac, thank you so much for joining the show.
Zac Wilson: No, thank you guys for having me on.
Sylvain Perrier: Now Zac, for the audience who may have never heard of Raley’s, we have a pretty broad international audience for our podcast, can you give us a little bit of history on Raley’s and what are its current eCommerce offerings?
Zac Wilson: Yeah, so Raley’s is a family owned grocery store here in Northern California, and it started back in 1935, and basically contains the market of Northern California, Bay Area and Northern Nevada. Where we’re at as far as eCommerce goes is an interesting story, we started our eCommerce back in 2003 in a little store in Venetia, and just went through many iterations of platforms and process over the time. And then in 2016 made the decision to jump feet first into this whole eCommerce fast paced market, and we expanded out to additional 36 stores, and then since then we’ve grown it to 113 locations out of our 126 operating locations, and that’s for click and collect.
Zac Wilson: And then we decided to get even crazier and expanded and added delivery by third party companies in 87 of our locations that serve almost every market in which we operate in. In addition to that, we also went down the path of marketplace exploration and partnerships with Instacart, Doordash and another company that we’re getting ready to launch here pretty soon to add that Uber convenience factor for our customers. And then another interesting piece that we have at Raley’s is we have this new brand of store that we just started two years ago called Market 5-ONE-5, with the extreme focus on organic natural education, thus the name 5-ONE-5, and we have the opportunity in that location to really test and vet out new technology, new process and just implement some of the things that we’re going to be talking about a little bit later in this podcast.
Sylvain Perrier: That’s great, so 03′, now you’re knee deep in it and I’m sure you’ve seen tons of things, can you share with the audience some of the click and collect challenges?
Zac Wilson: Yeah, so when we made the decision to jump feet first in 2016, we decided that we were going to use the existing store footprint that we have today. And it’s a very challenging experience, especially when you’re trying to drive efficiencies and product availability in a very high cost operating scenario. So the biggest challenges that we faced were around store design. The other piece of that was the labor inside of the store, inventory that’s qualitative and quantitative, the technology and organizational transformation, we’re a family owned company from 1935 and are slow to come around to technology. So it was a big leap and balance on that. And then once again, the overall cost to do business, when we look at what we’re trying to offer as far as that shopper experiences out of our store, but also still provide that high quality personalization online and in a very operating expensive area, it just double folded the whole costs to do business.
Sylvain Perrier: Now do you see any form of negative in-store shopping experiences? And if you do, can you share some examples?
Zac Wilson: Yeah. So there’s been some, I would say good challenges that have happened from our expansion, and we’re lucky for the growth factors that we have in our eCommerce area, but it hasn’t been met unchallenged for the customer experiences inside the store. So once again, we go back and we talk about the store design aspect, and now have a ton of personal shoppers that are shopping for what we call e-carts Raley’s, online shopping orders that are clogging up the aisles at some of our higher volume stores. And that impacts that customer travel through and time inside the store. In addition to that, with the launch of Marketplaces that adds that additional customer impact store travel impact as well. So it’s overall perceived as an okay experience now, but as we continue to grow, is it going to be acceptable in the future?
Zac Wilson: The other piece that I would say has been a big challenge as well as is, the parking lot experience. I mean when customers pull up to your stores, they want to have the best experience possible, and finding for our parking space inside of some of our smaller shopping centers is going to be detrimental, especially when we have delivery companies and Marketplace shoppers coming in and taking up those spaces as well. And then the last piece that we saw the biggest challenge from is, and we touched on it a second ago, labor, it’s very unpredictable when we have orders that come in. So sometimes we have to pull people from other departments and it takes away from that customer experience that we want to make available for our customers, so having that flexibility but sacrificing it to what extent on that customer inside the store shopping has been also a big challenging factor.
Sylvain Perrier: Yeah, those are amazing examples. And I always find that when we work with certain retailers, whether it’s in North America, whether it’s in Europe, and quite frankly anywhere on the planet, it’s always striking a balance, Mark you and I talk about this, it’s this balance between customer centricity and doing what’s right for the customer, but what … I won’t say fiscally responsible, which makes fiscal sense for a retailer, right?
Mark Fairhurst: Retailers always have to keep their eye on the margin.
Sylvain Perrier: Yeah, especially in grocery retail.
Mark Fairhurst: Yeah, and Zac mentioned it directly, is this predictability factor. So how do you ensure that you’ve got predictability in your purchases online and in-store without adversely affecting the margin overall?
Sylvain Perrier: Yeah, and the question we always ask our retailers, and Zac, we’d be interested in getting your opinion on this, is innovation and a strong roadmap a cure to some of these challenges in your world?
Zac Wilson: I would agree with that, especially when we look at the here and the now, and we look at what’s coming in the near term future and the longterm future to maintain success. Things are changing so rapidly, but I always say, you have to have a plan to execute at the high level now, but also know that what you’re doing today is not going to necessarily be what you do 24 months from now, or even three years from now or five years from now. So go through and look at some of the innovations that some of the other companies are doing and humble yourself to know that you’re not always going to do it the best in class.
Zac Wilson: So piggyback off of what others are doing and executing on, but also know that financial responsibility inside of a family owned and operated grocery store is also at a high concern. So you can’t afford to have too many messages. Go in with a strong plan and be willing to adapt that plan, especially as new technology is vetted out, it seems like every day now, and then just be prepared for the next five years on what you’re going to do as far as your strategy goes.
Sylvain Perrier: Yeah, that’s great advice. I mean it’s also challenging in this day and age in grocery retail to be super iterative, meaning let’s get a minimum viable product out there to market, when the reality is the bar been set very high in certain tech spaces within the concentrate of grocery retail. Now Zac, like when you look out into the future and you think about innovations that are coming down, what gets you jazzed, what do you think some of these retailers that are in your market, or in the US in general may be thinking of implementing?
Zac Wilson: Yeah, so when we talk about eCommerce specifically, some of the things that I get excited for is around this automation, and around the dark store concept. One of the things that we have to make sure that we maintain is putting that customer first, and not necessarily as your eCommerce customer, but as also as your in-store customer, because they’re a very valuable customer for you. So when I look at the automation, or the automated facilities that companies like Kroger are trying to stand up and take off fulfillment centers are doing. That ultimately is going to be the key I believe to lowering your operating costs.
Zac Wilson: Some of the other things that I believe are going to be important as well is, having that inventory transparency, so your supply chain, letting customers know what products you actually have inside your stores at all times. That way you’re not disappointing with the out-of-stocks or the substitutions that you’re going to get from time to time. The other piece to look at is along the lines of automation, but also how do you get the products to the consumer faster. So looking at that development of third party relationships is going to be key, especially moving forward in the market in which we operate in as Raley’s here in California,
Sylvain Perrier: We’ve talked a lot about, internally here at Mercatus, is the whole reverse Amazon model, meaning that since groceries has such a high household penetration rate, I think last time I looked at the numbers it was North of 96%, meaning there’s a continuous influx and churn of customers coming in, much faster than you would see in apparel, much more than RX, much more than Home Improvement and so on. So why not go ahead and layer in the ability to do drop shipping, which is essentially the ability to sell items that you don’t carry in your inventory out to your customers, and the retailer would take a margin of that, it’s a margin that can be significantly higher than food. Is that something in your world Zac is appealing to the grocery retailers out there today?
Zac Wilson: I believe it is. It’s an untapped resource for some retailers, including us on certain levels, but to your point, a store can only hold so much product inside this four walls, and inside of the market in which you operate that store, you’re going to have a plethora of customers on different levels of food, knowledge and food wants. So being able to lean on these third party drop ship companies to provide our customers with more product availability and differentiating product, I think is a big factor moving forward, and Amazon does a fantastic job at capitalizing on these different offerings, but I think grocery retailers have an opportunity as well.
Zac Wilson: Most of the grocery retailers have built that trust in the consumer that comes in and shops inside their store. So when they know that a product is backed by Raley’s, they know that they can trust it a little bit more than something that may be coming as a recommendation from Amazon. Ultimately, to the point of margins and costs, yes, it is going to be a higher margin product that you put out there, but it is going to help control your internal labor and margin costs by utilizing somebody that focuses solely on fulfilling those types of items, and getting it to the consumer faster.
Sylvain Perrier: Yeah, that’s a great point. Mark, I remember years ago, Topco tried this, this endless aisle concept.
Mark Fairhurst: And for those who don’t know, Topco is essentially a buying group for our grocers.
Sylvain Perrier: Yeah, probably 50 members today, and they do an amazing job in terms of helping their members. Remember years ago they tried this and it made a lot of sense, but where it became a challenge is how do you deal with returns, because some of these products were being fulfilled centrally by Topco, but being sold through the various dotcoms and then how do you deal with returns? When I compare Loblaws that’s gone into the marketplace solution, does it make sense? I think to a certain extent it does, because if you go into a superstore today, you’ll have the Joe Fresh line, you’ll have the President’s Choice extended lines, their extensive HBA section and so on.
Sylvain Perrier: So I think at some point they also did furniture, so I think there’s a lot of knowledge at corporate to be able to do some of those things and to bring the vendors into the marketplace. I think that becomes a little bit of a challenge for a smaller regional retailer, and I think it needs to be more curated, and I think the technologies that are coming to the table they need to come in with their strong partnerships to be able to support the retailer to bring that ‘list of curated products’. Zac in your world, do you see this as becoming a mainstay, is it a short term, or a long term solution in terms of the competitiveness of some of the regional players out there?
Zac Wilson: I believe it’s a longterm play when it comes to marketplaces, especially as we continue to talk about consumer insight and listening to what the customer wants, and you brought up a good point of bringing in these third party companies inside the store specifically where you have an opportunity to make it more of an event based and a need to go based shopping experience. But the same can be conveyed online, so if you’re partnering with a company such as Drinks is a good example, and they have an offering of something that may be popular but you don’t carry, your customer is going to know that they can easily access that as a one time shop from your location.
Zac Wilson: Because when we look at market penetration and we look at market share, one of the things at least we notice is that consumers are venturing out away from our stores and they’re not necessarily loyal to do their entire grocery shopping trip with us. So as a marketplace provider, or working with marketplaces, I think you can leverage the fact that you can do basically a bulk majority of your shop through one retailer’s website and get the products in which you need in a timely fashion.
Sylvain Perrier: Now, you talk about customers venturing out, what’s your sense in terms of what your shoppers really want when it comes to click and collect?
Zac Wilson: We have the opportunity to listen to our customers very closely being in the hyper competitive market in which we are. And I go back to my “F”s of what the customers want. So the customers are really asking for products to be fresher, they want it to be faster, they want to get it faster than what they do today, they want a frictionless shopping experience both online and in-store, they want it to be convenient, they want it to be fair priced and they want the experience to be familiar. When we talk back through all of these things, these regional retailers have an advantage around it being fresher because the product is farm to fork essentially for here in Sacramento, whereas some other retailers have to have it shipped in a little bit further away.
Zac Wilson: The convenience factor and faster I think is a real determining factor. We live in an extremely busy world and it’s only getting busier, so the time grab for an individual customer is even shorter than it was before. So they want good quality, they want it faster, they want the products now, but they also want it to reminisce of the days in which they came into the store and shopped. So really transferring that personalized shopping experience online or at the curbside when you come out to greet the customer, really driving down that wait time, making that experience fast, making it memorable, because let’s admit it, the impression in which you make on that customer in that one to two minutes that you physically see them means more than it used to in the past. You don’t have that opportunity to win them back like you did before.
Sylvain Perrier: Oh, that’s so true. And so when you think about all the technologies that you’ve implemented in the last little while, how do you get the associates on board?
Zac Wilson: Oh, change management is huge moving forward in technology, because the technology is changing so rapidly, one of the things that you have to maintain is that constant communication with the teams that are utilizing it, and getting that feedback, because developing that technology in a vacuum only leads to more stress and lower efficiencies and more customer complaints. So, ultimately what it comes down to is that technology has to be simple to use and it has to be able to be trained very quickly on … and understand why they’re being trained on it, and how it’s going to benefit them in the long run, but also describing the benefits of the technology for the consumer, letting them know and understand that this is something that consumers demanding and how it’s going to make their jobs easier.
Zac Wilson: And then once again, just driving home the fact of, you roll out technology, you have to adjust it, you have to continue to adapt and make sure that it’s the right technology, and then being able to fail quickly on that technology and roll back and roll something else new builds that trust that you’re listening for that communication, that feedback from both the consumer and the customers.
Sylvain Perrier: That’s great advice. Now, our last question is, we ask this of all of our guests, when you think of your space in click and collect, what words of advice would you give to our listeners that are retailers out there?
Zac Wilson: The biggest thing as far as advice that I can go comes in twofold. The first is, remember why we’re doing the business and who comes first, it’s the customer, you have to center everything around your customer, your clientele and the areas in which you operate in. Don’t go out and make decisions based on things that you believe will be good returns in five years because you have to take care of the here and the now, which leads to the second point of, make sure you have a plan, you want to be very concise about this plan, you want to be very transparent about this plan as well, and it builds that trust not only in your store team members but also in your consumers when they can see releases happening, upgrades happening, new technology, changes in the field, the vibes, the smells of the things in which you guys are building and putting out there.
Zac Wilson: And then ultimately, what it comes down to is, be humble, know that you’re going to have to lean on partnerships with other companies, know that you’re going to have things that don’t always work out for the betterment of the company, but be able to say, we’re going to shift gears and move on to something else, because one thing is consistent about this and that’s the speed in which things are changing and evolving. Thanks to Amazon and Walmart of course, but just know for the regional players out there, make sure that you execute on that plan and keep the consumer on the forefront of all your thoughts and initiatives.
Sylvain Perrier: Hey that’s great. Zac, it’s been a pleasure having you on the show, how can our listeners get ahold of you?
Zac Wilson: You can find me on LinkedIn, at Zac-Wilson-369021102\. Once again, that’s on LinkedIn, and that’s Z-A-C-W-I-L-S-O-N-369021102.
Sylvain Perrier: Great. So ladies and gentlemen, thank you for listening and don’t forget to download our next episode, which I think, Mark, we’re recording this in New York.
Mark Fairhurst: Yeah, we will have another episode record with germane to this topic, one of the topics on marketplace.
Sylvain Perrier: We’re actually going to be in the New York City at that point.
Mark Fairhurst: That’s right.
Sylvain Perrier: That’s fantastic, and Mark, how do people get ahold of us?
Mark Fairhurst: www.mercatus.com, all of our contact channels are at on the foot of our website.
Sylvain Perrier: Great, peace everyone.