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Podcast #8: What role does technology play in the future of grocery retail?

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Mercatus Radio presents the Digital Grocer - Episode #8

In episode #8 of the Digital Grocer Podcast, Sylvain Perrier and Mark Fairhurst continue the discussion from last podcast on trends surrounding the grocery retail market, namely: the excitement around delivery solutions, the risk of passing this solution to a third-party, and what role technology should play in the retail space.

In a recent Mercatus survey of households across the United States, consumers in the southern states expressed that they, “are 41% more interested in in-store pick-up versus delivery,” with interest in delivery falling in around 20%. With in-store pickup being the preferred option for shoppers, we discuss what implication this has on grocery retailers’ strategies versus what we’re seeing in the market.

Is jumping on delivery solutions to keep up with recent moves from Amazon and Walmart an effective strategy for grocery retailers? Perhaps delivery in its current state isn’t quite the investment retailers imagine it to be.

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Sylvain Perrier:              Ladies and gentleman, welcome to Digital Grocer, our beautiful podcast. Episode… I think, Kevin what is it? Is it episode eight?

Kevin Glen:                   Yeah, this is episode eight.

Sylvain Perrier:              Eight. Seven is about to be… was just released.

Mark Fairhurst:             Just posted.

Sylvain Perrier:              Just posted, which is awesome. And start to get dark in, uh, wonderful, uh, downtown Toronto. It’s uh, it’s a Thursday night. The night creatures are about to come out.

Mark Fairhurst:             On King Street West here.

Sylvain Perrier:              On King West.

Kevin Glen:                   Still no snow down here, though, right?

Sylvain Perrier:              Well…

Mark Fairhurst:             You guys got a little bit this morning.

Sylvain Perrier:              Yeah.

Kevin Glen:                   New Market got pounded last night.

Sylvain Perrier:              Well, I wouldn’t say pounded.

Kevin Glen:                   Oh, it got pounded.

Sylvain Perrier:              Yeah.

Kevin Glen:                   It like, I was up at like 11PM last night, and it was like full-on flurries.

Sylvain Perrier:              Really?

Kevin Glen:                   Yeah, but this morning…

Sylvain Perrier:              Oh, I was in bed.

Mark Fairhurst:             It was all gone, all melted.

Sylvain Perrier:              The old man here was in bed. (Laughter) You get a cer… you get a certain age, you know, you take a glass of warm milk, and then you’re out. (Laughter)

Mark Fairhurst:             That’s what retail does to you.

Sylvain Perrier:              So I’m kind of, you guys hear it right, like uh, we’ve been asked to submit market… is it a prediction for 2019?

Mark Fairhurst:             It is a prognostication.

Sylvain Perrier:              Ooh.

Mark Fairhurst:             As to the…

Kevin Glen:                   That sounds religious. (Laughter)

Mark Fairhurst:             Well, in many respects, I’m sure our analysis of the retail industry…

Sylvain Perrier:              Yes.

Mark Fairhurst:             Religious.

Sylvain Perrier:              That would explain everything.

Sylvain Perrier:              Yeah, it’s exciting to have to do that because I have a lot of respect for Winsight. Right? You know what they do… their magazine and their website is really, it’s not embellished with a crazy amount of stories, but the stories that they do have really get down to the essence of what they’re supposed to represent. So it’s ultimately an honor to be selected to kind of do that.

Mark Fairhurst:             Absolutely. And this is to be included in the December cover story for their publication.

Sylvain Perrier:              Oh awesome, that’s great. Yeah and I was kind of, you know, I was standing in front of my white board… or white, I want to say white wall, but it’s not, but you know it’s kind of one of those walls I can write on. And it was… you know, looking back, some of the research we did, trends that we see happening in the industry, conversations you and I have, the research that we do along with our clients…

Mark Fairhurst:             Yep. Yep.

Sylvain Perrier:              Uh, and a bunch of the R&D stuff that we do, and it’s kind of like I feel, you know, with some of the recent announcements that have come out in the trades with respect to Instacart raising that last round…

Mark Fairhurst:             Yep.

Sylvain Perrier:              …and you know their, their notion of an idea of doing an IPO, and I would suspect you know, the rumors are out in space that the perspectus is being filed and part of me wonders if 2019 is going to be the year with these really mature retailers that are going to kind of snap out of it and say, “Hey, you know what? I think we’ve made the decision we’re going to take charge of our digital strategy.” And probably more specifically around not just their digital strategy but owning their cart and their digital commerce experience, and bring together a plethora of varied solution providers amalgamated under one solution, or one platform, that the retailer has control over. And then the retailer is going to say, “OK, so now we have this, now we’re going to get into this idea of deep retail.” Does that make sense?

Mark Fairhurst:             Absolutely. I think this… as you become more of a digital consumer and a digital retailer, the physical relationship is not constrained by the store, the brick and mortar.

Sylvain Perrier:              Right.

Mark Fairhurst:             If you don’t have that connection in a digital environment, what’s to retain that shopper from coming back?

Sylvain Perrier:              Right. That echoes a lot with Phil.

Mark Fairhurst:             Mm-hmm (affirmative).

Sylvain Perrier:              What he said, right? Phil Lampert on the podcast… is ultimately some of the retailers are just gonna realize that they need to be more than just wholesalers to these ancillary parties.

Mark Fairhurst:             Correct.

Sylvain Perrier:              Right? If that makes sense. So I’m kind of excited for that. I’m also excited to attend Groceryshop.

Mark Fairhurst:             They, you know, for an inaugural event, they’ve done a phenomenal job.

Sylvain Perrier:              Yeah.

Mark Fairhurst:             And I can appreciate this coming from just the event marketing perspective. They’ve done a fantastic job of building a strong following, an excitement. They’ve done it with creative flair.

Sylvain Perrier:              Yeah.

Mark Fairhurst:             And they’ve been consistently hitting the right market with the right message.

Sylvain Perrier:              Do we know how big that team is over there?

Mark Fairhurst:             Off the top of my head, no. I know there’s at least a cadre of senior people that uh, we’ve been dealing with. But I also know they have very strong media partnerships.

Sylvain Perrier:              Right.

Mark Fairhurst:             So, Winsight, which you mentioned off the top…

Sylvain Perrier:              Yeah.

Mark Fairhurst:             … has been one of their lead uh, media partners. Outreach, uh, platforms.

Sylvain Perrier:              Right.

Mark Fairhurst:             And I know they’ve also been working closely with Industry Dive.

Sylvain Perrier:              Right.

Mark Fairhurst:             So they’ve got the market pretty well locked up in terms of reach and communication.

Sylvain Perrier:              But who… Who is left in, in events in this space here? Like, honestly?

Mark Fairhurst:             Yeah, there’s… well you have the publications that have events to sort of full, you know, fully compliment their portfolio of offerings.

Sylvain Perrier:              Right.

Mark Fairhurst:             EnsembleIQ has their path purchase event.

Sylvain Perrier:              So Mark, we’re going to Groceryshop this year.

Mark Fairhurst:             That’s right.

Sylvain Perrier:              Right?

Mark Fairhurst:             Yep.

Sylvain Perrier:              And I’m excited because it’s become one of these premier events.

Mark Fairhurst:             In a very short period of time. This is the inaugural event that they’re holding… came as an offshoot out of a grocery track, they had Shoptalk, which you know you and Tim attended.

Sylvain Perrier:              It was crazy. It was crazy.

Mark Fairhurst:             Yeah. For this year, for us, it’s one of the higher profile events that we’ll be at. NRF is up, uh, early January, which is the National Retail Federation.

Sylvain Perrier:              Yeah.

Mark Fairhurst:             Huge show.

Sylvain Perrier:              How many attendees? 30,000? 40,000?

Mark Fairhurst:             For NRF?

Sylvain Perrier:              Yeah.

Mark Fairhurst:             Oh no, last year was over 100,000.

Sylvain Perrier:              Really? No way.

Mark Fairhurst:             Yeah. It’s really odd. NRF is in… it’s north of 100 years. It’s, you know, being the National Retail Federation Show, it used to be a strong representation of the East coast. But NRF, but you know, the National Retail Federation Show, has become one of these shows that has, in the last, call it, 36 months, three years, predominately attended from people outside of the United States. So, I think it was five years ago, we did a speaking engagement. It was the first year, first full year Dave Conte had been with us.

Sylvain Perrier:              And Dave’s our CFO.

Mark Fairhurst:             Our CFO. Right. Chief Financial Officer. And part of the whole process of Dave being with us, he wanted to attend and we said, “You know, you have the… if we’re gonna, we’re gonna have the CFO there, blah blah blah.” And all those things. I ended up with a speaking engagement. Innovation Track, you know they have those speaking rooms in the back downstairs?

Sylvain Perrier:              Yes.

Mark Fairhurst:             So, I ended up doing… the subject was Survival in Digital Retail.

Sylvain Perrier:              Mm-hmm (affirmative)

Mark Fairhurst:             Around engagement and a precursor to how you would tackle commerce. We ended up having standing room only. It was great because people were taking, snapping pictures with their iPads, which is not something (Laughter) you normally see, right? They’re like, they’re holding up their iPads like crazy.

Sylvain Perrier:              Mentioning that, I was… in another life…

Mark Fairhurst:             Yeah.

Sylvain Perrier:              We had one of our directors of UX taking an iPad walking around competitors’ booths.

Mark Fairhurst:             Oh, my god.

Sylvain Perrier:              Show organizers were saying, “You cannot do that.” You couldn’t be any more obvious.

Mark Fairhurst:             That’s cr… that’s awesome.

Sylvain Perrier:              With an iPad Pro, mind you.

Mark Fairhurst:             Seven… 12 inches.

Sylvain Perrier:              12 inch cameras.

Mark Fairhurst:             Oh, my god. Yeah. I can… so that was the exact case. So towards the end of the whole presentation, right, which is maybe 45 minutes, I polled the audience. “Who’s from outside North America?” Hands went up. It was the majority of the room. And then I started naming countries. And I was like, it was flabbergasting. And so it is a testament you will know how heavy attendance is at this show because the Sunday will be brutal, because they come in on the Friday or the Saturday, and then they vacate the Monday night… the Monday night or Tuesday night for the international flights home. It gets really eerily quiet (laughter) in the show, right?

Kevin Glen:                   I was going to say, to put that into perspective, 100,000 people, that’s like the second biggest stadium on the planet, I think is Michigan State Stadium.

Mark Fairhurst:             No, no, not State, Michigan U.

Kevin Glen:                   Michigan U?

Mark Fairhurst:             So I’ve been, so I’ve been to a couple football games there. So it’s called the Big House.

Kevin Glen:                   Oh, OK.

Mark Fairhurst:             And so you tailgate outside and you see these massive screens, and you kind of see the wall of the stadium, and you’re like… you have no sense of perspective of how big this thing is. And so when I went, my last game, I had along the 40th yard line. Right by –

Kevin Glen:                   Oh, that’s good.

Mark Fairhurst:             Right by the cheerleaders and the band on the Michigan side.

Sylvain Perrier:              Right.

Mark Fairhurst:             And it fits 110,000 people.

Kevin Glen:                   That’s insane.

Mark Fairhurst:             Oh it’s… insane’s not the word. Thank god they don’t allow drinking inside.

Kevin Glen:                   And that’s like, the second biggest stadium on the planet.

Mark Fairhurst:             Uh, yes. The bigger one is the Acropolis? (Laughter) I don’t know if it’s the Acropolis. [inaudible 00:08:55]

Kevin Glen:                   Uh…Rungrado, May Day Stadium?

Mark Fairhurst:             Yeah, May Day Stadium, yeah. I have no clue where that is.

Kevin Glen:                   In North Korea.

Mark Fairhurst:             Oh, my god. Of course that’s in North Korea!

Sylvain Perrier:              Yeah, road trip… road trip’s off the planner, there.

Mark Fairhurst:             I can’t wait for them to do their own retail show. (Laughter) It’s gonna be great. Who’s gonna go? Well, apparently they’re beginning commerce.

Mark Fairhurst:             So, NRF, National Retail Federation… in February, we’re attending the National Grocer’s Association event.

Sylvain Perrier:              Yeah. Are we getting a speaking engagement at that one?

Mark Fairhurst:             Yes. Just had a conversation with them today.

Sylvain Perrier:              Is it confirmed? Is our guest confirmed?

Mark Fairhurst:             You told me he was confirmed.

Sylvain Perrier:              Yeah, we just have to remind him.

Mark Fairhurst:             OK. Big surprise coming.

Sylvain Perrier:              Big surprise, stay tuned. That will be episode nine, I think. I don’t know. (Laughter)

Sylvain Perrier:              And then shortly thereafter, you and Tim are back at Shoptalk.

Mark Fairhurst:             Yeah, but we also, we have the San Diego show for the…

Sylvain Perrier:              That’s NGA.

Mark Fairhurst:             NGA… oh, well, what’s the… are we not doing the FMI mid-winter?

Sylvain Perrier:              We’re still debating [crosstalk 00:09:50] about that.

Mark Fairhurst:             Yeah, yeah.

Sylvain Perrier:              And, uh, and then Home Delivery World in uh, early April.

Mark Fairhurst:             In Philly.

Sylvain Perrier:              In Philly.

Mark Fairhurst:             And we’re up on stage with Mr. Ladd?

Sylvain Perrier:              Correct. Britton Ladd, who was on, I think our first podcast.

Mark Fairhurst:             First three.

Sylvain Perrier:              First three.

Mark Fairhurst:             Yeah.

Sylvain Perrier:              That’s right, we did a series.

Mark Fairhurst:             Yeah.

Sylvain Perrier:              Uh, he is the Chair of the Grocery Track event, and you have the keynote speaking position.

Mark Fairhurst:             Fantastic.

Kevin Glen:                   When is Home Delivery World?

Sylvain Perrier:              I think it’s April… 3rd? 3 and 4?

Kevin Glen:                   How much is that going to cost me? (Laughter) You’re going to have PO’s to process.

Sylvain Perrier:              Yeah. No, it’s not that, that show.

Kevin Glen:                   No?

Sylvain Perrier:              No.

Kevin Glen:                   OK.

Sylvain Perrier:              The Vegas is the more expensive show for us. Right?

Mark Fairhurst:             Vegas in terms of, uh…

Sylvain Perrier:              Just our presence.

Mark Fairhurst:             Just, yeah. Because it is a bigger, bigger show.

Sylvain Perrier:              It’s a bigger show.

Mark Fairhurst:             The Home Delivery World is a very, it’s a smaller audience.

Sylvain Perrier:              Niche.

Mark Fairhurst:             Niche audience.

Kevin Glen:                   OK.

Mark Fairhurst:             But it’s a very specific talk and we have a very good talk track to present. I don’t want to give anything away as far as upcoming announcements, but it’s gonna be a very appropriate venue for us to participate in.

Sylvain Perrier:              And 2018 for us has been an interesting year. Right, Mark? Like if you look back when we made the decision to come from transitioning from more… from leader to authority in the space, we started doing our own research…

Mark Fairhurst:             Right.

Sylvain Perrier:              Research… and research in conjunction with our clients. So when we actually quote statistics… so here’s a crazy statistic, OK? In the southern part of the United States, for consumers that shop 3-6 times online a month, right? They are 41% more interested in in-store pick-up versus delivery. Delivery kind of falls in an around, it’s almost a 2 for 1, falls in not even, not even 20%.

Mark Fairhurst:             And knowing that, what do you conjecture as the reasons why?

Sylvain Perrier:              So here’s the thing, right? I think we, retailers have swung this pendulum massively toward delivery because there’s the notion of labor costs and so on, because there’s the fear of promoting your eCommerce, I mean, I could go on. But bottom line to me is it’s strictly about convenience for consumers. Personally, for me, it is more easier for me to pull up to the store, to get the stuff put in my trunk of my car, and then go, versus having to rush home, the fear of somebody not showing up, the fear of stuff being left out on the porch – all those things.

Mark Fairhurst:             What’s fascinating to me…

Sylvain Perrier:              Mm-hmm (affirmative)

Mark Fairhurst:             And you have a much, much richer history in retail than I do, help me understand the delivery component.

Sylvain Perrier:              Right.

Mark Fairhurst:             Consumers weren’t clamoring for store to door delivery.

Sylvain Perrier:              No.

Mark Fairhurst:             It was concocted, it was…

Sylvain Perrier:              Tactic to actually compete against Amazon.

Mark Fairhurst:             Exactly.

Sylvain Perrier:              Right.

Mark Fairhurst:             Uh, and now you have this, this clamoring, apparently, at least in the trade press…

Sylvain Perrier:              Right.

Mark Fairhurst:             … that we read and consume, for… for delivery.

Sylvain Perrier:              Correct.

Mark Fairhurst:             But the reality is that brick and mortar retailers have a strategic advantage because of the investment they have in the real estate that they now occupy.

Sylvain Perrier:              Correct.

Mark Fairhurst:             So you would think that grocery retailers, to counter this desire for, uh, delivery, would invest in the very thing that you just raised.

Sylvain Perrier:              Yeah.

Mark Fairhurst:             The preference for in-store pick-up.

Sylvain Perrier:              Yeah. So, here’s the harsh reality, right, of kind of the history of online grocery eCommerce. So, you know, Gen 1, we saw Webvan, which would have been, you know, a solution looking for problem in the early days. And I’m not knocking the innovation or the people at Webvan, but the reality is you know, innovations tend to follow the tide of consumer demand. As much as we’d like to think certain technology ignite consumer demands, the reality in certain spaces… that’s not the reality. Right? I can think of the evolution of the smart phone, where Apple kind of ignited it, that’s maybe one of those, you know, small exceptions.

Sylvain Perrier:              So Webvan shows up, and you know, just does not end well. Then you have Gen 2, which is our friends over at MyWebGrocer, who have recently kind of merged over with Mi9 Retail, and I feel bad for those guys. Rich ran, Rich Terrant, ran an amazing company, did really well, but I mean, some of the stuff coming out in the press is kind of, I feel bad for those employees, especially if you go to Glassdoor and you see some of the latest comments. Like, it’s unfortunate.

Sylvain Perrier:              These things do happen when businesses merge or are sold, it’s the unfortunate reality. So, the one thing MyWeb did, they were stellar at curb-side pick-up.

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              Whether we like it or not, that’s what they did. Their technology lend itself really well to that. So there was this culture of, really establish across their retail footprint, right? So if you think of their original retail footprint, Pricechopper, Weis Markets, Shoprite, WinCo Foods, SavOn in Canada, I mean that can go through the list, right? Ad nauseum. But, the barrier to entry was two fold. It wasn’t a technology issue. It was the notion of the cost of labor for a retailer and the fear of promoting the entire solution. Now, the ROI calculator that your team released completely dispels that whole thing.

Mark Fairhurst:             Right.

Sylvain Perrier:              Because behind the scenes, it takes into account the cost of labor, the cost of equipment, yadda yadda yadda, all those great things. And there was the notion of a fee that you would charge the customers. OK, so the number one barrier would have been the cost of labor. The second one, surprisingly enough, retailers didn’t understand… and still, to a certain extent, I think that’s being kind of dispelled today, “Oh and we can’t charge more. Can’t charge a fee. We can’t charge this.” You and I know, our research has proven, from a price-sensitivity perspective, for the sake of convenience, consumers will pay.

Mark Fairhurst:             Yeah, absolutely.

Sylvain Perrier:              Right? And we see that from some of our delivery partners we have today and some that are not our delivery partners. They’re capable of up-charging a 10, 12, 15% on a per-product basis, and they randomize it based on what will give them the best return. So, that’s the second one, right? So suddenly, along comes Gen 3, Gen 3.5, Mercatus falls into that. Rosie, and the list goes on, right? The smaller players, the bigger players. And we come to the table with a bit of a different offering. Wider expanse on the platform, the ability to integrate a bunch of different third parties, leverage the existing investments you made in technology.

Sylvain Perrier:              But the reality remains that there is this fear around labor. And, so simultaneously with this fear of labor exists the acquisition of Amazon buying Whole Foods, where suddenly everyone thinks that everyone’s going to have their food delivered through Whole Foods. Now, in Canada and Toronto, I use Grocery Gateway. It is, it’s expensive. Not going to lie, and the product offering that’s inside Longo’s is not exactly aligned with what Grocery Gateway has to offer.

Mark Fairhurst:             Mm-hmm (affirmative), right.

Sylvain Perrier:              That’s the reality. And on top of that, not only am I paying a premium, of in some cases, from what I can tell, 3-8%, I’m paying a delivery fee at as high as $9.99. And it’s frustrating because the time slot’s not always available. So, now everyone wants to counter Amazon. And so now you have everyone feeding off the fear that it’s same-day delivery. So we have some that are smaller, regional retailers that we have worked with, are working with, and have never worked with, but we’re part of their journey. We have conversations with them, we help them with research. We’ve seen certain markets, the growth of delivery, 18% period over period, and it makes sense in some cases. But the notion of same-day, that’s a myth. From our conversations, from our research. It is typically 2-3 days.

Mark Fairhurst:             And just so the audience knows, this is research that we have conducted with the blessing of our retail partners to reach out to their, their shoppers.

Sylvain Perrier:              It’s like a million households.

Mark Fairhurst:             Absolutely.

Sylvain Perrier:              Easily a million households participate in this, right? And it is statistically representative. And it’s conducted by people that are scientifically adept in this space, right? So it’s not just us throwing some sort of survey up on some whiz-bang website, let’s hope we get some results, right? That’s not the case. So we get these results. So the market is now feeding off of what Amazon is doing in the space, what Wal Mart may counter in the space, and it’s a tit-for-tat, who can outperform who in terms of within-the-minute delivery, which is like, it’s feeding this frenzy.

Sylvain Perrier:              So, back on to that, the notion that-

Mark Fairhurst:             That has no rational basis.

Sylvain Perrier:              There’s no rational basis to it.

Mark Fairhurst:             To exist, yes.

Sylvain Perrier:              So then along comes a company like Instacart and suddenly now sweetens the pot with, “We’ll cover the labor.” That whole entire solution comes with a significant amount of risk.

Mark Fairhurst:             Right.

Sylvain Perrier:              Right? So if I look at their roster of retailers, that is… there is some that have been excessively smart who have fenced them off.

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              Meaning, you know, if our customers want the convenience of delivery, great, they can click click here, they’ll go to your marketplace, blah blah blah. They’ll pay premium, whether it’s a delivery fee and the arrangements – the contractual arrangements that they will have with them with respect to the mark-up. Fine. There are those that haven’t. And so what they have done is not only co-opted their brand…

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              But worse than that, they’ve become a wholesaler.

Mark Fairhurst:             The retailer has.

Sylvain Perrier:              The retailer has become a wholesaler. So, and I’ve had these conversations with some extremely powerful, large retailers and you know, they go, “Well, it’s great for us. They cover the labor,” and so on. And then I’ll ask a very simple question. “So, let me ask you a question. So if you take, for example, if you want to integrate a new piece of technology that could influence what’s added to the cart, do you think you could do that?” It’s not going to happen. And they’re like, “Well, we’ve already asked and we’ve been told ‘no’.” Exactly. So now your entire digital strategy, and I hate to say it, but the reality is if we all think that the number of users of web and mobile technology is going to remain constant and not increase, I’m sorry, that’s not the truth. It’s just, it’s the norm now.

Mark Fairhurst:             And… it’s not the history of the web. It’s not…

Sylvain Perrier:              It’s not.

Mark Fairhurst:             From the early 90’s to today.

Sylvain Perrier:              Right, and Mark, you said it. The problem now, because you’ve pushed the pendulum so far into the hands of someone else, how does this now fit into your brick and mortar strategy?

Mark Fairhurst:             Right.

Sylvain Perrier:              Well, it really doesn’t at this point. I think 2019 is going to be… I hope… you know, for the retailers’ sake, it’s going to be… they’re going to wake up. I’m also wondering if certain solutions like that, if you’re a retailer not controlling it and there’s a premium attached to it, is a recession proof.

Mark Fairhurst:             Because that, as we have talked about internally, and you know, you published a blog on it… it’s not a matter of if, it’s just a question of when the next downturn comes.

Sylvain Perrier:              Well, absolutely.

Mark Fairhurst:             And which retailers are prepared for that and which ones are not.

Sylvain Perrier:              Correct. Absolutely. Absolutely. So I think it’ll be interesting to see what happens in the space and I think, you know, the notion of hype and grocery delivery platform, I think there was a new entrant today that kind of said…

Mark Fairhurst:             Postmates?

Sylvain Perrier:              Yeah, Postmates now is getting widespread… they’re 134 markets, delivering food.

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              So now we have Shipt, we have Instacart, we have Doordash…

Mark Fairhurst:             Doordash.

Sylvain Perrier:              Postmates…

Mark Fairhurst:             Postmates.

Sylvain Perrier:              And we also know –

Mark Fairhurst:             Deliv Co.

Sylvain Perrier:              Deliv Co. We have Uber.

Mark Fairhurst:             Yeah.

Sylvain Perrier:              Who’s made…

Mark Fairhurst:             Who are now coming back into the grocery market.

Sylvain Perrier:              And it’s, you know, surprising enough, and kudos to them. They’re the ones that kind of said they decided to pull out of the [inaudible 00:22:32], the Wal Mart pilots. And I get why they want to get in, it just makes sense, I mean it got commented on this Progressive Grocer, and so on and was picked up, is the reality is this main source of revenue, they just have to figure out how to manage and handle food. Right, it’s not akin to who they are.

Mark Fairhurst:             Other than Uber Eats which has been very successful with a small food service establishment.

Sylvain Perrier:              They’ve been great. I’ve used them here in Toronto and they’ve been amazing at it. They’ve been great.

Mark Fairhurst:             And they made that Jump acquisition which will allow them to have urban delivery on bicycle with refrigerated packages.

Sylvain Perrier:              And it’s kind of like everyone is trying to crack this nut on delivery and I’m wondering, part of me wonders if this is a frenzy. You know this reminds me of the telecom years, right? It’s a frenzy of “let’s build something and let’s hope someone buys us.”

Mark Fairhurst:             Right.

Sylvain Perrier:              Because the amount of capital that is being raised on the multiples that are being discussed today makes, there’s no rhyme or reason to it.

Mark Fairhurst:             Is there a market for delivery?

Sylvain Perrier:              Yes. 100%, there’s a market for delivery.

Mark Fairhurst:             Is it, is it the entire grocery shopping market? No.

Sylvain Perrier:              No, it’s not. Even when we mine our own data, regardless of if it’s delivery or not, or pick-up or not, there’s a range of products that the consumers mentally have not accepted to have someone else touch.

Mark Fairhurst:             Right.

Sylvain Perrier:              Right? And I think that’s part of the secret sauce, when you own your own brand and you have your own employees being the personal shoppers… there’s the ability to create a stronger affinity to who you are and your essence as a, as a retailer. When it’s your people that are chatting with your consumer and saying, “Hey,” you know, the phone call? “Hey Mr. Smith. I know that you wanted this product. Unfortunately, we’re out of stock. I’d like to recommend this product, I think it would really compliment your family.” Because they start to know them intimately. That just completely gets lost, you know, you just get a text message like, “Hey this is out of stock, what do you want, this is my recommendation.”

Mark Fairhurst:             It’s an impersonal experience.

Sylvain Perrier:              Yeah and I think, you know, if I think of the… of some of the, uh, we talked about this on the last podcast when I was complimenting vince’s markets north of the city, how they brought in these European brands and then they have people on site, there’s an emotional affinity to it and part of the experience, right? You’re feeling a deep connection with the person that’s kind of walking you through the product that they’ve just made. Is that sustainable at a large scale? I think Sprouts Farmer’S Market does it quite well. Especially if you go in the vitamin section. And I think a lot of retailers could take you know, that as a big piece of learning in terms of what happening. And I think that when it comes to commerce, it’s not all about user interface, mobile, kind of that thing – there’s still an organic process to it, because we’re feeding our families.

Mark Fairhurst:             And that’s a good point you make, because it’s not technology replacing the consumer experience, it’s about augmenting and enhancing.

Sylvain Perrier:              Yeah, don’t tell a VC that.

Mark Fairhurst:             No.

Sylvain Perrier:              Do you know… do you know what I mean. It’s, it’s, it’s augmenting, it’s enhancing. Right? It’s not replacing and that’s the unfortunate thing when we’re technologists. Right, because we’re trying to remove the human side of it. But the reality when it comes to anything… I’ve always said there’s two industries that are very difficult for technology to kind of do anything substantive: retail, specifically apparel and food, and I’ll touch both of those, the second was medical. Right?

Sylvain Perrier:              So even with me, when I go to the doctor and they know, I go to a specialty doctor here in Canada, my medical records are online, they’re electronic, it’s centralized, I can review the stuff… there’s a certain coldness to that. Because I want to talk to the doctor, because I have a high EQ, and I’m not patting myself on the back, I want to see her, like her reactions and stuff. So I, like, when I think of technology in the field of the medical industry, it’s an enhancement to the patient, enhancement to the practitioner.

Sylvain Perrier:              When I think of food in retail, it’s very much an enhancement. Save me time on the things that are laborious… building a shopping list, building a basket.

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              Teach me how to nourish myself better than what I think I can do today. Connect me with an individual that is going to help me achieve those things. Give me convenience and tailor it to me. So that’s where I see technology play the realm. But I don’t want to lose touch with my favorite brands. So there are certain Canadian retailers, I won’t even drive by a store. I avoid it. My fear is like, when I go in, they’re unionized. So I go in, I have to bag my own groceries, so I go with a massive order through self check-out, the produce is rotting, I mean… so there’s this negativity, and I don’t care how much technology you throw at me. I’m not going to come back. Like, I just don’t get it. That’s why I prefer going to a retailer like Longo’s. They’re smaller.

Mark Fairhurst:             Or Vince’s.

Sylvain Perrier:              Or Vince’s. They’re smaller, they care about the quality of their product that they’re putting on their store shelves, I can talk to someone, yadda yadda. And I think the majority of the consumers are like this. And I hate when people say, “Well, millennials…”

Mark Fairhurst:             Well, you had mentioned, because it’s apparel and food, it’s those products that are most intimate to someone’s persona.

Sylvain Perrier:              Right and so when I look at the realm of apparel, right? So if you guys want to win at apparel, figure out how to do better. I can tell you Amazon sucks at apparel. So I’ve tried to buy jeans, dress shirts, socks, whatever, and it’s never correct. I bought shoes, it’s never bang-on. And most people are very self-conscious of their bodies. There is nothing worse when that is in the back of your mind and you get a garment from an Amazon that just doesn’t compliment your figure or doesn’t fit. And I have a stack of dress shirts at home from Amazon that I’m like, I’m actually not going to return them, they’re going to Goodwill.

Mark Fairhurst:             Really?

Sylvain Perrier:              Right? So when I think of technology in that space, I’m like, the notion of using a website and clicking on it or using a mobile application in the space of apparel, just doesn’t work for me… likely doesn’t work for the majority of consumers. And now I understand why Amazon releases these cameras that does all this stuff, because they have an issue to solve. Because they know their core website, that is so tied to intellectual property, that’s why the Amazon user interface hasn’t been enhanced.

Sylvain Perrier:              Now I remember in our hardware days when we’re building a computer for a shopping cart, and we’re layering in AI, when I was doing patent infringement studies, as well as circumvention studies, uh, and non-infringement studies. I had a stack of 200 patents. 50% were methodology patents from Amazon and we’re like, well I guess we can’t do that. But what will you learn? And I predicted this many years ago. They’re not going to evolve their UI. Have they? When was the last time you saw a major UI change from Amazon?

Mark Fairhurst:             At least on the front end, architecturally it’s been the same as long as I can remember.

Sylvain Perrier:              Exactly. There’s a reason for that. So I mean, so that’s where the industry is going. So I think this whole notion of consumers demanding delivery is hyper-inflated. In our research, what we did prove – so when you stratify the United States into three quadrants…

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              The East coast, middle America, and that’s not a bad thing, and the West coast, there is a stronger demand for in-store pick-up in the middle United states. And that is, we don’t know why that’s being – what’s driving that, I think a lot of that is weather. And it is the fact that the expansiveness of the geography, people would prefer in some cases to not have stuff delivered. Now I will counter that, that I’ve seen on the East coast delivery is in certain cases, in rural areas, has far outranked in-store pick-up.

Mark Fairhurst:             On the West coast.

Sylvain Perrier:              Uh, no, on the East coast.

Mark Fairhurst:             On the East coast, OK.

Sylvain Perrier:              On the East coast. And a lot of it, and when you look at the make-up of the families, it is, will be someone with 2+…

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              … children in the household, and there’s a convenience factor, but the premium is pretty excessive. The delivery expectation is not same-day. It’s 2, 3 days. And anything that we’ve ever done here and any of the measurements we’ve done here, right, because we run these dashboards on our knock, and we see waves of… waves of orders coming in, typically around the… when the flyer is released, right?

Sylvain Perrier:              On the West coast though, it’s a different story, where delivery seems to be really ingrained in the culture and there’s an expectation, a greater expectation for same-day. When I say greater expectation, I’m not talking about 75% of the population surveyed, I’m talking about less than 40% that appreciate more same-day. And that is relegated to maybe 2 or 3 cities on the West coast, predominately San Francisco, the San Francisco market.

Mark Fairhurst:             Yeah so, you’ve got to wonder how much of this is influenced by geography, congestion, um…

Sylvain Perrier:              100%. I, uh..

Mark Fairhurst:             Families are strapped for time.

Sylvain Perrier:              I was in San Francisco, right?

Mark Fairhurst:             Mm-hmm (affirmative)

Sylvain Perrier:              Right, and I go to San Francisco at least, I’ve been there…

Kevin Glen:                   Once a year, at least. Right?

Sylvain Perrier:              Well, the last little while, 4 times and I have another trip coming up for a bunch of partner negotiations. And I can see why that would be the case. I mean, the volume of traffic is insane, right? And the notion of this flexibility, this on-demand kind of notion, is critical in that market. But that’s not representative of, it’s not representative of the remaining population of the United States. It’s certainly not representative of our own Canadian landscape.

Kevin Glen:                   No, no.

Sylvain Perrier:              Right? Kudos to Loblaw’s because they’ve maintained control. This is where they’re smart, right? Loblaw’s Digital uses Sapient Nitro for a lot of their front-end stuff, much like Kroger does as well.

Kevin Glen:                   Mm-hmm (affirmative)

Sylvain Perrier:              And so they’ve controlled their cart, they have their PC Express trucks, and they supplement along those lines with the Instacart. There are some cases, I can’t think of a case where I need groceries and am prepared to pay a premium, like I need something right away, that’s kind of odd. Um, but it will be interesting to see how this materializes in the next little while.

Kevin Glen:                   SO going back to what we talked about off the top, which is what does 2019 look like, I think at grocery shops there will be a lot of presentations, a lot of chatter about the trends that are shaping the market and, and the industry. So we look forward to being able to talk about that…

Sylvain Perrier:              Yeah.

Kevin Glen:                   … um, when we return.

Sylvain Perrier:              Yeah. Perfect.

Sylvain Perrier:              Ladies and gentleman, thank you so much for joining us on our podcast and uh, don’t forget to look out for our next episode sometime soon.



Sylvain Perrier

Sylvain is president and CEO of Mercatus Technologies, and the driving force behind the leading digital commerce platform in grocery retail today.

Mark Fairhurst

As Senior Director of Marketing at Mercatus, Mark is responsible for leading the overall market strategy development, planning and execution to support Mercatus' multi-year revenue growth and customer acquisition and retention objectives.