Podcast #3: Playing the “Infinite Game” with Brittain Ladd

Mercatus Radio presents the Digital Grocer - Episode #3

Welcome to the Digital Grocer, a show about all things related to online and in-store digital commerce. Join host Sylvain Perrier, president and CEO of Mercatus Technologies, as he explores the players, the issues and trends disrupting and re-shaping the grocery retail marketplace. Sylvain concludes his conversation with Brittain Ladd. Together, they consider the future state of grocery retail and the implications of new players like Amazon who are playing an Infinite Game, where there are no defined rules, the rules can change at any time, and the goal is to keep the game going forever.

Enjoyed this podcast? Then you might like these resources:

• Blog Post: Surrounded: Growing threats to traditional Grocery Retail Industry, featuring Brittain Ladd
• Podcast: 2019 Grocery Retail Market Predictions with Brittain Ladd

PODCAST TRANSCRIPT

Sylvain Perrier:              Welcome to Mercatus Radio episode three. I’m your host, Sylvain Perrier, President and CEO, and joining me as always, in studio, is Mark Fairhurst, our very own senior director of marketing. Mark Fairhurst:             It’s great to be back. Number three. Sylvain Perrier:              Number three almost in the can and at the board, at the helm, I’d like to say Scotty from Star Trek and it’s not, but it’s Kevin Glenn, which is even better than that, right? ‘Cause Scotty would be really old right now. Mark Fairhurst:             I think he’s passed away. Sylvain Perrier:              He has. He unfortunately has. Has he left behind that formula for the transparent aluminum that he’d like- Mark Fairhurst:             Oh, from the- Sylvain Perrier:              -from the movie- Mark Fairhurst:             – Star Trek 4. Sylvain Perrier:              Yeah, Star Trek 4 and he started talking into the mouse computer. Mark Fairhurst:             Yes, perfect, yes. Sylvain Perrier:              That’s great. And so today’s topic, we’re going to be talking about the infinite game in grocery retail, #winning, #tigerblood, thank you Charlie Sheen. By the way, we miss you Charlie. When are you going to call me back? So the industry’s changed and I mean, we certainly covered that in podcast number two. We talked about the new entrance, how the product lines are being blurred, how grocery retailers have restaurants, and now how pharmacies have products that are typically sold in grocery retail, the acquisition of Shopper’s Drug Mart by Loblaws. Sylvain Perrier:              It’s so different and I think it’s just going to accelerate. And what we’re seeing happening right now is the difference between companies that are just okay with status quo, and others that are really all about playing the long game, right? Sylvain Perrier:              Which is really synonymous for those of you who watch sports. And as always, we have our expert on the line, Brittain Ladd. For those of you who don’t know him, he’s the man. He gets his space, right, he’s published, prolific writer, knows everything about technology, and retail, and eCommerce. Sylvain Perrier:              Welcome back to our show. Brittain Ladd:                Thank you so much. It’s really great to be back for this episode. Sylvain Perrier:              So, winning. And winning in the most classical of terms is very finite. It’s like a project. It has a beginning, and it has an end, it can be very well defined to a certain extent, it has winners, and it has losers. And Vegas is very good at cultivating kind of that what I like to call the finite game. Right? Sylvain Perrier:              And I can tell you that more often than not, today, we’re seeing this dynamic change where retailers are falling into this pit, for lack of a better term, where they become very finite. And I can remember, and again, I’m a history buff, just in general I think most of the people that know me, know that, and I can remember being in Fort Mill, South Carolina in 2008. I was landing into Charlotte CLT and it was really odd on the plane for a Sunday. There was a lot of Canadian bankers on the plane. Sylvain Perrier:              Let’s check into the hotel in downtown Charlotte at the Omni, couldn’t get a room. My roommate disappeared and there is crowds of people freaking out. What I didn’t know, it was announced that Lehman Brothers had shut down. And it was the beginning of the financial crisis. And so through that Sunday on, for quite some time, we saw some of North Carolina and South Carolina, and I will say South Carolina specifically, their unemployment rates went up to 17%, which is huge. Higher than the national average at the time. Sylvain Perrier:              And what you could see across the pool of tier two and tier one grocery retailers, a big shift in strategic direction, a very big shift in how they competed in the market, and you could get a good sense of those that really wanted to succeed. They doubled down on their private label, ’cause they knew that the people that used to go to restaurants during the week, or would go to higher end retailers, would eventually trickle into their front doors. Sylvain Perrier:              But they also equally knew that there was a class of consumers that they normally served, that couldn’t afford anything anymore, that would have to go to the food banks and the like to survive. So the smart ones knew how to squeeze costs out of their supply chain, knew how to double down on their private label, how to get the best out of their CPGs to be able to survive. And there are others today, from that experience, have still not recovered, you know, the industry is still today faced with a lot of retailers that are dealing with chapter 11s, chapter 7s. Sylvain Perrier:              We at Mercatus have had to go through two prominent retailers that have gone bankrupt, Fresh and Easy, for those of you who may not know how they are, I think they were started in the LA market by Tesco, just before the financial crisis or during the financial crisis, they never recovered, and A&P. A&P was one of the US’s first and at one point, largest, grocery retailer. Sylvain Perrier:              So interesting developments. So Brittain, help our audience understand, what’s the opposite of a retailer that’s playing their short game? Brittain Ladd:                A retailer who plays the infinite game, and let’s really kind of help the audience get a better understanding of this, as you stated earlier, finite game, you know how long you’re going to play. You know what the score, or how the game is going to be scored, there’s a referee, there are agreed upon rules. Brittain Ladd:                An infinite game is, rules can change at any time, there are no agreed upon rules, and the goal is to keep the game going on to infinity, keep the game going forever. And to me, the company that understands that the best, is Amazon. And the reason why I say that, is if you look at Amazon, Amazon says, “We don’t just want to be a retailer, we want to be in technology, we want to be in entertainment. Why do we want to do that? Well, because we know that’s what our customers are going to want.” Brittain Ladd:                Customers need technology, customers want entertainment. Amazon made the decision to acquire Whole Foods. Why? Because their customers need groceries. Their customers need food. And more importantly, what Amazon did is they understood very early why are we here. Well, they were really there to disrupt. They were really there to create an ecosystem that was unlike anything else. But it was always built around the needs of consumers. And the way to keep Amazon growing was to find more and more ways to meet the needs of consumers, and not deviate from that. Brittain Ladd:                So when I look out there and say who plays the best? Absolutely, I have to rank Amazon number one. And I look out there and I say, Walmart does a really good job. I think Walmart understands the infinite game, but I do not they play it anywhere near as well as Amazon. And as your audience members should know by now, I have coined this phrase where I say, “India could be Walmart’s Vietnam.” And what I mean by that is when you look at the infinite game, the goal is to keep the game going on forever. So the goal is to outlast the competition. Brittain Ladd:                In a finite game, football, baseball, baseball, and so forth, the goal is simply to beat the competition. So I believe Walmart today is still playing a finite game. You hear them refer constantly to wanting to beat Amazon. Amazon never talks that way. So now you have Walmart and they’re going to enter India. They’re going to buy a majority stake in a company called Flipkart. Brittain Ladd:                And the challenge for that is Walmart is going to India, because why? They want to beat Amazon. They think they need to draw a line in the sand and make a stand there in India. The challenge is this, Wall Street rewards Amazon no matter what they do. Wall Street punishes Walmart for almost everything that they do as well. Brittain Ladd:                So if Walmart starts taking losses in India, as I believe they will, Walmart will have to put even more capital into India, and I believe the losses will continue and just as the United States had to withdraw from Vietnam after putting more and more troops, and more and more effort into the war, the United States had to withdraw, because the Viet Cong wanted to outlast the United States. Brittain Ladd:                And I believe Amazon’s goal in India will be to outlast Walmart and if the losses start to pile up, Walmart will have to pull out of India. And that’s why I believe that Amazon will win, because Amazon’s there to outlast Walmart and everybody else. Walmart’s going in there to win and that’s the big difference between what’s an infinite game player and who is a finite game player. Sylvain Perrier:              I can draw correlation. This is, and Mark will know about this, this is like Target retreating out of Canada. Brittain Ladd:                Yep. Sylvain Perrier:              Right? So Target, first of all, you know, in Canada we call Target, Tarzhay. You know, and I don’t know why, I mean, we do this as Canadians. Mark Fairhurst:             [crosstalk 00:10:13]. Sylvain Perrier:              That’s like calling a coffee with two creams and two sugars, a double double. I still don’t get it, but in any case, we tend to … we love our brands and we tend to give them these odd silly names. But in any case, Tarzhay retreated for two reasons. One, is the failed to understand the Canadian psyche and the cultural mix in our own country. A consumer in Vancouver is very different from a consumer in Montreal, different from a consumer in Halifax, different needs, different cultural backgrounds, and just across those three cities, those three areas, there’s like [inaudible 00:10:51] six languages spoken, right there, right? Sylvain Perrier:              And Canada, you know, seems very large on a map, but the reality is, not even 10% of the US population. So that’s number one, did not understand the consumer. The second thing they did, they screwed up their supply chain. And the third one, and I don’t think our audience knows this, but there was an article that dabbled in kind of trying to explain this issue, and I view Target as an infinite player in this space here, but they failed. 50% of the employees at Target’s Canadian head office, in the outskirts of Toronto, were transplanted from Minneapolis. Sylvain Perrier:              That was the biggest mistake they made. Thinking that they could take 200 people, traveling back and forth into the Canadian space, that suddenly, oh magically, this is an operational problem here. Let’s get a bunch of Six Sigma people, we’ll fix it. And that’s not going to work. And I agree with your statement Brittain, is that we’ve seen this. This has happened before. Seen it in our own backyard and I think that the reality is, it’s sexy to go into India. There’s a lot of people. There’s a big opportunity. Sylvain Perrier:              But you can bleed yourself dry of money, and knowledge, and great executives if you don’t know what you’re up against. And I love how Amazon has positioned themselves to force Walmart, to force their hand to spend a lot of money. And that is a … for that amount of money to have been approved, I think you must agree that somebody must have jumped through some hoops at head office. Brittain Ladd:                I agree and I think the thing that you said that we need to follow through on, is let us not give the impression that if you play the infinite game, that you aren’t involved in strategy. Strategy allows the infinite game to continue, making wise decisions, not deviating from who you are, not over reaching. And so when I look at what’s going on with Walmart in India, we would be remiss if we didn’t point out that this is a great strategy on the part of Amazon. Brittain Ladd:                And one way to think about it is if Amazon was a crocodile, they’re laying underneath the surface of the water at the watering hole, and along comes the buffalo. And Amazon the crocodile grabs that buffalo. They don’t bite it and let go. They want to pull that buffalo into deep water. To me, India is deep water for Walmart. This is out of their wheel house completely. Brittain Ladd:                Amazon’s global. Amazon has a very experienced team of executives and unlike Target, when they made the mistake of how they went to Canada, Amazon built up a very experienced team of individuals who are familiar with business in India, the culture in India, and Amazon has gone out of their way to really ingratiate themselves to the consumers, to the population. Brittain Ladd:                Flipkart, even thought they’ve been in business for 2007, they were unable to establish a real leadership position within India, because if they had, Amazon wouldn’t have been able to come in and quickly take market share. Why was Amazon able to do that? They’re able to provide a better customer experience. So just because Walmart is entering India, doesn’t mean that they’re going to find success. And again, that’s what’s going to be interesting as this plays out. Brittain Ladd:                Does the infinite player Amazon, are they willing to take losses? Do they just simply invest massively in price? And sell items at a loss no matter what? Walmart does the same thing so they have to make investments, but what happens is, there’s two different outcomes. Wall Street punishes Walmart for losses, and they reward Amazon for sticking to their strategy. So the executive team at Amazon I think is going to be the one that stays the course, doesn’t deviate, but I think within Walmart is where we’re going to see a lot of the in fighting beginning, and a lot of the second guessing, just as happened with your example of Target when they entered Canada. Brittain Ladd:                There was an awful lot of people who stood back from that and said, “Why didn’t we realize what we were getting into in the first place?” Sylvain Perrier:              Yeah, and then I can remember when they opened the first store in Canada, they came in through an acquisition. All right, they bought the assets out of Zellers, you know, Zellers Canada. The one thing I’ve found that was very odd, now they invested an incredible amount of money in rebranding, re-energizing the real estate, and so on. But they kept the same employees. And these were unionized employees. Mark, is that correct? I think it was, right? Mark Fairhurst:             Correct, correct. Sylvain Perrier:              So I can remember going into one of the stores. Now aside from having holes in the inventory, so stuff missing, the product mix wasn’t like the US, so we were no longer calling it Tarzhay, as proud Canadians we would call it Target. And the employees were disgruntled. And it was just a brutal experience, not the same that you would get south of the border. Sylvain Perrier:              Now I’m curious, who do you think is doing … besides the Amazon and the Amazons, and the larger retailers, who’s playing the infinite game really well in grocery retail? Brittain Ladd:                Aldi and Lidl. I tell you what, if you want to look at a company and say, or both companies, you could look at them both and say, you couldn’t ask for a better team of executives, you couldn’t ask for a better team that understands why are they there, what is their mission in life on a daily basis. And between Aldi and Lidl, they have over 20000 stories globally, they will be the largest grocery retailer globally for many years to come. Brittain Ladd:                And in the United States, what I really anticipate happening, is that Aldi and Lidl are going to expand beyond their niche market, and they’re going to start introducing some more high end products. I believe they are going to go to more of digital platform. But they’ll take command and control over it themselves. And when I look at Aldi and Lidl, and as you were speaking earlier about the financial crisis and the fact that there were retailers who had people coming in, and they really couldn’t afford anything because they didn’t have the right products, Aldi and Lidl never have that problem. Brittain Ladd:                They are focused on private label, they don’t deviate from that. They really maintain low prices, they maintain high quality, they don’t deviate from that. And although many strategy advisors have said to Aldi and Lidl, you should be going into electronics, and expanding into other areas, they understand they need to really stick to what it is that’s made them successful all these years. Brittain Ladd:                And so when I look out there, other than Amazon, certainly Aldi and Lidl. I certainly agree with you about Target as well. I think Target is a much better company today, for what happened to them in Canada, because I think it was a wake up call. And as we know, a new CEO came in after that. And I believe Brian Cornell today says, “We have to be smarter, we have to have a better strategy, and more importantly, everything we do, we have to understand it needs to be focused on our core customer, our target customer, and not necessarily trying to compete with what an Amazon is doing or a Walmart is doing. Let us make sure we don’t deviate from who we are as a company.” Brittain Ladd:                Now when they went to Canada, I was just amazed at what I saw. So I certainly agree with you that Target does a really good job, but other than that … well let’s add Wegmans. I think Wegmans absolutely is an infinite player. They’ve not deviated, they haven’t expanded. I think H-E-B in Texas, they’re absolutely phenomenal at what they do, so I could make the argument that they’re a pretty good infinite player. Brittain Ladd:                But when we talk about an infinite player, what we’re looking at is, who is going to be able to do this globally, and who is going to be able to do this as demographic changes occur and so forth. So these companies today, the Wegmans, and the H-E-Bs, yes, they’re successful. What about 10 years from now? 20 years from now? That’s what we mean by the infinite player. The company goes on forever, because they’re able to adjust to the needs of the consumer without changing who they are. Brittain Ladd:                So that’s what’s going to be interesting to see how this plays out. Sylvain Perrier:              Yeah, and I would agree with your statement regarding Wegmans and H-E-B. I mean, these are organizations that I think each are going through now, bringing on board their fourth generation leader. I know that specifically for Wegmans, Danny Wegman himself, he’s stepping down. His daughter is taking over his role. She’s fairly young, she’s been in the business I think forever, so she certainly quite learned very well at the hands of her father. And they are, Wegmans is an incredible brand. Sylvain Perrier:              They were one of the first to actually incorporate, I think it’s in Pittsfield where they have one of their stores, they … this is a little bit of a Wegmans story, so they built a restaurant across the road, where they actually test out their recipes and their ready made food before it’s put in their store. And I visited this place, so this is Rochester. Rochester used to be, in the grand scheme of things, the home of Xerox, Bausch and Lomb, Kodak. That’s really no longer the case, right? Sylvain Perrier:              So I think Wegmans is still one of the very few largest employers in the area. But because of that, there was this French gentleman, I can’t remember his name. I don’t even know if he’s still alive. But what he used to do, he used to import fine wines, and this is not even related to our topic, but I just gotta share this story with the audience. And he bought an old warehouse in Rochester, and it was stocked with 20000 bottles of wine that he had imported over 20 to 30 years, that he was maintaining. Sylvain Perrier:              And so the Wegmans family is like, I think we should get into the business of having stand alone locations where we can sell alcohol and wine. So they went in and they hired this gentleman. He was fully retired. And they bought his stock of wine. We got to see how they were inventorying in this wine and so on. So it was kind of cool to kind of watch the family and the executives at Wegmans really start to think outside of the box of just grocery, and being able to diversity their product mix, and try to start something else. Sylvain Perrier:              But what I found really more interesting than this story that I’m sharing with the people listening, is all the years that I’ve had the opportunity to interact with Wegmans, or H-E-B, or any small regional retailer, and these guys aren’t small, that are really playing the infinite game, they’re very customer centric. Brittain Ladd:                Correct. Sylvain Perrier:              They think first, not like, hey, I think if we bought this computer things will be faster. I think if we did this operationally, this would be better. They start first and foremost, how will our consumers react, does this meet their needs. And that’s very interesting. Now who’s out there, not in the grocery space, maybe the technology space, who’s playing the infinite game that is just knocking it out of the park? Brittain Ladd:                Well, I certainly think you have to look at Apple, you have to look at Microsoft. Both of those companies absolutely are. You have to look at someone like AmerisourceBergen Bergen, you have to look at McKesson pharmaceutical, they’re absolutely doing a great job. And then you have someone who thinks they’re doing a great job or wants to give the impression they’re doing a great job, and that would be Tesla. Brittain Ladd:                So Tesla wants to be the company to convince you they’re playing the infinite game, but they’re really not. I think your audience members when they listen to this, will cautiously and subconsciously as they think of companies, on their own say are they an infinite company, an infinite player, or are they a finite player. And there are those companies, that their name rises to the surface and you look at them and say, “Absolutely. They’re in this thing for the customer, and they have a track record of success, and they always seem to make the right moves.” Brittain Ladd:                But then there are those companies that kind of come out of nowhere and they get the press. They get an awful lot of press and it gives the impression that they’re an infinite player, that they’re going to be around for the long haul. But history is just full of companies that weren’t able to do that. If you look at technology, you look at Dell for example. Dell was looked at as being the absolute leader in all things related to computers and technology. And Michael Dell is famous for saying that Steve Jobs should sell Apple and give the money back to the shareholders. Within two years, just a few years of Michael Dell making that comment, Apple overtook Dell in terms of market share. Brittain Ladd:                So I think Apple has absolutely learned along the way how they need to keep their focus in order to play the infinite game, and there are all kinds of other companies out there that try and give the appearance of being an infinite player, but they’re really not. And I would have to put Tesla at the top of the list. Sylvain Perrier:              Yeah, so I loved the fact you used Dell as an example. Because I want to talk … I was a major Dell fan. This is a classic example where you get enamored with selling servers because there’s better margin, you’re playing with bigger businesses, and you stop looking at your consumer business, and thinking like your consumers at what they want to buy. Sylvain Perrier:              We’ve seen this with Research in Motion, and I think Tesla’s not that far behind. I think he was exceedingly rude last week, on one of his earnings calls with the analysts. Now he’s talking about building this candy moat to compete against Warren Buffet. This is just ridiculous. Sylvain Perrier:              Now can you, if you’re stuck in playing the finite game, and you’re, you know, a medium sized grocery retailer, can you turn the tide and become better, and start playing the infinite game? Brittain Ladd:                Absolutely. And we’ve touched on this in some of the other podcasts, but what it really comes down to is this. Again, understanding why are you even there. Having that honest conversation at the board level, if it’s a public company, why are we here, why are we here. And it goes beyond, well, to serve customers. Okay, well of course you’re there to serve customers, but do you really understand what it is your customers who come to you, want. And do you have a mechanism in place to where you’re capturing data, and really understanding who are your customers across all demographic levels. Brittain Ladd:                And then, do you have an ability to take that data and analyze it, and really help you start making better business decisions. And the thing that never ceases to amaze me, is when I hear people say, well, you want analytics, you want analytics. There’s all kinds of ways to get analytics, but analytics without interpretation of data to where you can make a better decision, really doesn’t help you much. And so for someone who’s playing the finite game, you really need to step back and say, I, in all honesty, don’t know who my customers are. I know we have customers, but I really don’t know what they want. I really don’t have a relationship with my customers, I don’t have an ability to personalize the experience. I really don’t have a good way to get an understanding of, as they go through their changes in their lives, how do I ensure that I’m there to provide them with that they need. Brittain Ladd:                And it begins with something as simple as that. And in my business, when I meet with executives, a lot of them scoff at doing this exercise and they’re like, oh, well we know our customers inside and out, we have all kinds of data. But my reply is, so why are you losing market share, why are you losing relevance, because the one thing that stands out for every company, that honestly is an infinite player is this, they are relevant in the lives of their customers. Consumers look at them as being relevant. Brittain Ladd:                And the biggest danger to regional grocery retailers, and we’ve seen this, with the bankruptcies that you spoke about earlier, they lost relevance. And here’s a fact, here’s an absolute fact within retail. When a retailer loses relevance, they never get it back. They absolutely never get it back. I’m a history buff as you are and I’ve never been able to find a single example where a retailer lost relevance, and was able to recover. Brittain Ladd:                And we see that today with Sears, no matter what they do, they’re not going to recover. We see it with other retailers out there as well. So the main thing that a finite player has to do is be introspective and honestly look at what they do, and look at their customers, and understand the importance of data, and personalization, and then from there, don’t just serve customers. Establish that relationship, establish a way to where they look at you as being relevant to what they do on a daily basis. Brittain Ladd:                And that’s when you start to convince those customers, I’m here for you. And it also is how you start to bring in the right executive team who say, we’re not here to win. We are here to play this, the long term, to be an infinite player. So it’s not easy, I don’t want to give that. I’ve been through this multiple times, but absolutely, there is a way to do this. But it really begins with a willingness. Brittain Ladd:                The CEO, the board of directors, they have to be willing to go through the pain to do this. Sylvain Perrier:              Yeah, 100%. And I would say that challenging status quo in innovating, in an environment that uses dated metrics to measure success is exceedingly difficult. And I’m reminded of an experience from, I think it was 12 years ago, with a successful regional retailer that wanted to build up gas stations. And they knew there was space in the market, they knew they had the ability to differentiate, they knew it could positively contribute to revenue growth, but internally it was road block, after road block, after road block. My role was simply to look at parts of the technology at the time, and I remember the CEO really wanted to do this. Sylvain Perrier:              Driving the challenge, driving the innovation made a pretty bold decision, which was, we’re doing this, but I’m going to hire a separate team, and they will not be domiciled in the same head office and they will have carte blanche to do what they need to do. Sylvain Perrier:              Now today, that part of the business contributes significantly to their success in this space today. And I think that, you know, when you’re a CEO and you’re faced with this challenge, I mean, certainly a lot of my fellow CEOs that I have a chance to interact with, that sometimes it can be really scary and you just gotta take that leap of faith. You have no choice, because it’s the difference between surviving and not surviving. Sylvain Perrier:              Sir, it has been amazing having you on three of our podcast episodes, and certainly the first three. You’re a gentleman and a scholar and I would like for you to share with our listeners how can they get a hold of you. Brittain Ladd:                The best way to get a hold of me is just reach out to me through Linkedin. I have a prominent role on Linkedin, I write articles and I always find a way to reply to anyone who does reach out to me. So Linkedin is absolutely the easiest way to get a hold of me. Sylvain Perrier:              Excellent. Ladies and gentlemen, you’ve been listening to Mercatus radio. Do not forget to tune in or to actually keep an eye out for our next episode, which will be coming out soon. Sylvain Perrier:              Mark, can you share with the team how do they get a hold … the team, I should say the listeners. How do they get a hold of Mercatus? Mark Fairhurst:             Yeah, and I just want to add, Brittain, thank you for your contribution to our first few podcasts. It’s been a wonderful experience and we look forward to engaging with you down the road. Mark Fairhurst:             mercatus.com is where you can reach us. Our social channels are accessible at the footer of every web page. Follow us on Linkedin, Twitter, Facebook, Instagram. Sylvain Perrier:              Thank you.