Sylvain Perrier:

Ladies and gentlemen, welcome to Digital Grocer, Mercatus’ very own podcast. Season four, episode three. I’m really excited. And joining me as always is my faithful cohost, Mark Fairhurst, our VP of marketing. Mark welcome to the show.

Mark Fairhurst:

It’s great to be here.

Sylvain Perrier:

It’s kind of an interesting show because it’s our first time in a long time where we’re actually doing a show without a guest.

Mark Fairhurst:

Without a guest, and this is basically you and me unfiltered.

Sylvain Perrier:

Was it ever filtered before?

Mark Fairhurst:

Well, I think we always had a structure.

Sylvain Perrier:

Yeah.

Mark Fairhurst:

We have some ideas about what we want to talk about, but this is us riffing it.

Sylvain Perrier:

Yeah. It’s like one of those things where the industry is just changing by leaps and bounds on, I used to say quarterly basis. It used to be years ago to be on an annual basis, somebody would come up with something innovative and then you can go to a trade show, you’d see it. And then miraculously would die on the vine for some reason. And now it’s like, there are innovations happening in this space that are bringing kind of spurred by the pandemic. So we’re seeing it now occur on a daily basis. There’s a tremendous amount of news that’s kind of filtering down to us through the trades, and through, yeah, the tech space quite frankly.

Mark Fairhurst:

Yeah. It’s coming fast and furious. I mean, it used to be that we had a plan program for these shows, but now it’s the news is happening so fast. It’s pushing us to expound on these, or at least comment on what’s happening a lot faster than we anticipated.

Sylvain Perrier:

Yeah. And it’s kind of interesting Mark, you and I were talking about this last week in one of our late evening telephone calls and I made the… My God.

Mark Fairhurst:

Much to your wife and my wife’s.

Sylvain Perrier:

Yeah. My wife says, “You see Mark Fairhurst more than you see me.” And this was before the pandemic folks, right?

Mark Fairhurst:

Yeah.

Sylvain Perrier:

And it’s kind of odd. I said to Mark, I said, “I have this interesting feeling and I don’t think this is wrong or right. I mean, I think it quite frankly may be a good thing in some cases. It’s like the dominant tech players in the space are kind of coming in… I don’t want to say taking over grocery, but I think they’re coming in to rescue grocery to a certain extent.”

Mark Fairhurst:

That’s an interesting perspective. They’re certainly bringing a different dynamism to the industry.

Sylvain Perrier:

Yeah. Well, we were on that, the whole webinar yesterday with the folks from Incisive and Winsight Media and there was myself, Jack Record over from ShopperKit and Jeff Baskin over from Fly Buy. And one of the questions that kind of came out is, and it came from an audience member, is, is delivery ever going to be profitable? And then there was the whole question about labor management and that Jack did a really great job in tackling and kind of Jeff jumped in on, how do you make sure that you’re that last moment of that interaction with the consumer where you’re giving them this stuff that they’re coming to get in on a curbside pickup scenario is really seamless and smooth.

Sylvain Perrier:

They had great arguments. The question that came to me was, well, what about service fees? And I answered the question in a way that was like, I think retailers in this day and age today are caught where they were 20 years ago. And Mark, you may have lived through this, but I remember 20 years ago when I worked for a research company, a lot of retailers were struggling how to compete against Walmart. And they were trying to compete against Walmart on price.

Mark Fairhurst:

Which is basically nuts.

Sylvain Perrier:

It’s nuts, and you just can’t do it. It makes absolutely no sense to do something like that.

Mark Fairhurst:

You just don’t have the buying power and you can’t spread it across the store footprint that Walmart can.

Sylvain Perrier:

Absolutely. And you’re right, because if you’re a grocery retailer and you’re not dealing with general merchandise, so you don’t have that bump up in margin to be able to do that. So you’re dealing in the world of the one to 3%. If you’re a Whole Foods, maybe 6%.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

No, used to be 6%, not sure what it is today, but the reality is, is that when you think of service fees and retailers are asking us today, clients, and non-clients saying, “I don’t want to charge service fees to my customers because Walmart down the street is not charging any, but hey, whoa, hold on here.” They can make that up in their margin. You can’t. So you got to be strategic in thinking, “Well, hey, if my average basket is $84, is that a profitable basket as it is today?” Chances are it may not be. “Do I just set a threshold? Hey, if you buy $100, or you’re buying $95, then maybe I won’t charge you a service fee.”

Mark Fairhurst:

Yeah, and I think the proliferation of last mile delivery providers, I mean, definitely in the last three or four years, consumers will pay for convenience. Not every consumer will. But a segment of your shopper base will.

Sylvain Perrier:

Sure. And listen, I do pay Sobeys 799 for every delivery that comes in. And I’m not just saying this because I can afford it. I paid 1099 because their service is that good, and the web experience is really that good. And I think Sobeys has done a really good job. And again, this goes back to our thesis. I think big tech is coming in to rescue grocery to certain extent. Sobeys is leaning heavily on Ocado-

Mark Fairhurst:

[crosstalk 00:06:20].

Sylvain Perrier:

… to support them in Canada. No, our choices here are fairly limited. You have Instacart, we definitely have Cornershop with Uber.

Mark Fairhurst:

Right.

Sylvain Perrier:

Right. So they’ve cut deals with Longo’s. I believe they’ve cut a deal with Metro, as well as some of the local pharmacies, and some of the big brands as well. So they’re kind of doing that. And then you have Voila by Sobeys and then you have some choice depending on where you live with President’s Choice or Loblaw. That’s about it. It’s not like if you were in the US right now where you would have a ton more of options in terms of how you want your food delivered. And I think, correct me if I’m wrong, retailers are now kind of looking to Silicon Valley and saying, “How do we get better at this? Can you help us? Can you partner with us?” I think.

Mark Fairhurst:

Yeah. And I definitely think that bringing in the technology companies is raising the game for some retailers. Other retailers are just in a quandary as to what they should be doing and who should they be partnering with?

Sylvain Perrier:

This is a bit crazy question, we read about this, we don’t talk about it. We don’t talk about it on our show. Were retailers dismissive that this day would come?

Mark Fairhurst:

No, that’s a great question. Actually I was just having a conversation with someone earlier today, it’s… I think as a species we become tunnel vision. We just get used to doing the same thing over and over again, and it takes an external shock, something to really jolt us out of our way of doing things like the pandemic, to get those lateral thinkers to actually grasp onto new modes and ways of thinking and operating. And I think this, if you look at the grocery industry, this definitely is that catalyst, but I also think there will be a group of retailers who just can’t make that leap.

Sylvain Perrier:

Yeah. And what I get concerned about is if you think back to the financial crisis of ’08, this is entirely-

Mark Fairhurst:

We’ve talked about this.

Sylvain Perrier:

… yeah. And this is entirely different. Yeah. We talked about this late at night.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

In ’08 what we saw is a trade down effect and a trade out effect. So if you were shopping at Dean & DeLuca and you lived in South Park, Charlotte, North Carolina, which is an affluent area in that gated community by this really nice Dean & DeLuca, and you lost your job at Wells Fargo or Bank of America, which we know B&A had a tremendous amount of layoffs in Charlotte, North Carolina. I mean, I was at ground zero the day it happened was just brutal. I was staying at the Omni downtown. I was working for Food Lion, in Salisbury. And suddenly you can’t go to Dean & DeLuca, okay. So your next bet is you’re going to a local Harris Teeter. You’re going to a Food Lion, is… So if you can’t afford those, you’re trading down into a bottom dollar foods, maybe a Walmart, and guess what, if you can’t afford those two at that point, maybe you’re going to a dollar store for canned food.

Sylvain Perrier:

Maybe you’re supplementing with government subsidies or you’re going over to a food bank. And that gets really scary. Now, the challenges that we see is, when the economy rebounded people went back into their regular habits, right? For the most part. But the reality is now is you have two effects. You have people, yes, that they’ve lost their job. And we know that the SNAP EBT program subscription rates are through the roof in the United States. And so at that point, you have people that are probably trading down and trading out, but you have people now for safety reasons, this is the kicker here, laterally shifting.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

Right?

Mark Fairhurst:

And our research, the report that we recently published shows this, online loyalty is a fraction of what it is for brick and mortar.

Sylvain Perrier:

Right. So there’s a third element here. And this was an amazing… I don’t want to call it a debate. It was a conversation that you and I had with the analyst team over at Goldman on Friday, out of New York. I know we had someone from New York dialing in-

Mark Fairhurst:

And London as well.

Sylvain Perrier:

… and London, England, is we’re getting a lot of reports from retailers that trade dollars have dried up, or are non-existent to a certain extent. And what I mean, like trading co-op dollars, dollars that are given by the merchant or the CPG over to the merchant and negotiating with, okay? The dirty word, slotting fees, placement in the flyer, the coupon, the floor graphic, the discounts, the whatever the trading co-op dollars are imagined. And we know this for a fact, there are a lot of retailers out there that those dollars are very important. They’re important to the category manager, because they may be tied to their compensation, their bonus plan, to demonstrate profitability of their category and to a retailer, quite frankly, simply for survivability.

Mark Fairhurst:

Well, yeah, and you’ve said to me in the past, I mean, this is the difference between a retailer being profitable with a one or 2% margin.

Sylvain Perrier:

Absolutely.

Mark Fairhurst:

And then actually being in the negative for an annual, for a year or more.

Sylvain Perrier:

Yeah. And we’ve waited, call it 14, 15 years to bolt in and add network into our solution until we knew that A, we weren’t going to go affect the trading co-op budgets, and that we were simply going to go towards maybe the above the line media dollars that had been shifting to digital. And that’s why we waited so long because we didn’t want to be part of a group that was going to cannibalize that.

Sylvain Perrier:

So now you have this pandemic effect where people are trading down, trading out and then laterally shifting into e-commerce. And quite frankly, not remaining necessarily loyal to their key retailer because they’re looking for a retailer that has availability of stock, availability of time slots per either pickup or delivery. Now you combine this third variable, which is the reality of trading co-op dollars that are drying up and the talk on the street from a lot of the CPGs is, “Hey, listen, we’re experiencing woes on our side, in manufacturing. We need those extra dollars to cover that.” There is a shortage of certain raw materials, quite frankly. And then we’re hearing shortage of aluminum because there was a spike on pedal bikes. And so now there’s not a lot of aluminum for-

Mark Fairhurst:

You bought one. I know you did.

Sylvain Perrier:

I did. There’s a lack of now aluminum for cans and the trade tariffs anyways, it kind of gets complicated for no reason.

Mark Fairhurst:

Even appliances.

Sylvain Perrier:

Absolutely.

Mark Fairhurst:

Stoves, dishwasher. You’re on waiting lists.

Sylvain Perrier:

You’re on waiting lists. So, now you have this lack of availability of these trade dollars and yesterday, Progressive Grocer did a great reporting on how retailers like Walmart and Amazon, and many others are building out their digital practices, their digital ad networks much like what we did, and we’re supporting at least three of our retailers and doing this. And my fear is you’re going to see an increase in bankruptcy in grocery retail, in the smaller tiers where they weren’t ready for e-commerce, they may have lost… So, they succumb to the three variables.

Sylvain Perrier:

Number one is they’ve lost consumers that are trading out. Number two, they’ve lost consumers I should say, not retailers. They’ve lost consumers that are trading laterally shifting to their competitor because they do e-commerce much better, or they just do it. And then suddenly you don’t have access to the trade funds anymore. And-

Mark Fairhurst:

Because the traditional spend has now gone digital.

Sylvain Perrier:

… absolutely has, well, it’s gone digital, I think it’s gone… The dollars are being spent in home and digital.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

So when I mean in home, I’m talking about TV, right? So TV spends and digital spends and CPG users I’ve always said, and Mark you went to, I can’t remember the firm that we used to work with, but we used to be able to go attend these great events on a monthly basis. It’ll come back to me anyways. And when we had chats with the folks, the senior team over at Heinz, you’ve chatted with the folks over at Nestle and so on, and CPGs have always said, “Hey, we can get distribution. Distribution’s not difficult for us. We can buy run of Facebook or run of keywords or an Instagram whatever.”

Sylvain Perrier:

It’s conversion that they want. The ability to influence you at the moment of you’re about to click on something. And quite frankly, as human beings, we are… In the ’70s, we used to be bombarded on average 400 to 700 times a day with advertisement. In this day and age, it’s North of 10,000 a day. So if you’re a CPG and you want to make that span, go spend it on a platform where people are buying.

Mark Fairhurst:

Yeah. Otherwise you’re going to be immersed in a lot of noise. It’s where, to your point, the conversion… The ability to influence the shopper at the moment they’re purchasing is going to happen.

Sylvain Perrier:

Yeah, absolutely. So I think this is just going to be the norm quite frankly moving forward and I dread what’s going to happen with the industry.

Mark Fairhurst:

Well, and that gets to something we may want to talk about is once the artificial inflation of top-line sales for grocers dissipates or goes away after the pandemic, what happens to these retailers when they don’t have that extra revenue to rely on? Our thesis is that the wave of bankruptcies will be much bigger than what we’re anticipating or anybody would be anticipating. So that leaves what? That leaves you with the large national tier one retailers, those tier two retailers that were strategic in their thinking and being able to stand up an experience that is differentiated at the same time as you have these new technology players coming into this space. You mentioned the Ocado’s of the world?

Sylvain Perrier:

Yeah. And this is where the team at Ocado didn’t agree. So the team at Goldman had this thesis, which was, can retailers leverage… And I look up here because I’m just thinking, can retailers leverage digital media dollars to offset costs and so on? And my argument to them potentially because you have to be mindful of your labor costs, your pick and packing, and your so on. And there’s so many factors. And my answer to them was not every retailer will be able to pull this off, right? That’s number one.

Sylvain Perrier:

Number two is I wanted to encourage them to think about this third variable that we just mentioned, which is, “Hey, if those in store trade dollars are eroding and no longer going, this becomes an issue.” And this has been the… The dirty secret of the industry has always been that 50% of any given marketing budget is spent on the print flyer.

Sylvain Perrier:

And I will hear the arguments day in and day out that it is the best customer acquisition tool that retailers have. I don’t agree with that. The reason I don’t agree with that, Layla Kasha the CMO at Grocery Outlet, she’s a beacon. She doesn’t do flyers. She’s a seasoned executive. I met her when she was originally at Sprouts Farmers Market. And then she went over to the Save Mart company in Modesto, and now she knows she’s worked her way up the corporate ladder to become an extremely powerful CMO. And Grocery Outlet has a unique business model in any case. But she’s taking her flyer dollars and she’s put them into digital.

Sylvain Perrier:

Harris Teeter, I think their flyer is like one page. And so now you have… I feel bad for the printing companies who’re going to lose a bunch of revenue, but that 50% is not just printing costs, it’s the people that you need to build out those flyers and they are complicated and they’re not easy. And surprisingly enough, I haven’t looked at Flipp and see how they’re doing as a business because of that. But anyways, maybe if I have a few minutes, I’ll do that.

Sylvain Perrier:

So it’s all interesting stuff. So Goldman is, I know that they were having… The London team was having conversations with Tesco and Ocado, to kind of get their thoughts on this. We know that Ocado has stopped reporting the amount of money that they take in from digital ad revenue. And I think the team at Goldman well, really wanted to find out is it a case that you’re just not reporting it anymore, or is it just because you’ve lost those dollars? So they’re supposed to be coming out with a positioning-

Mark Fairhurst:

Sorry, you mean the team at Tesco.

Sylvain Perrier:

… at Tesco, sorry.

Mark Fairhurst:

Kroger has done the same.

Sylvain Perrier:

Kroger has done the same. That’s true. So I’m interested to see what the team at Goldman is going to come out with as a positioning paper, which I believe will be available sometime in November and hopefully we’ll have access to it to be able to share it out to the group. Now, speaking of Ocado-

Mark Fairhurst:

I was just going to go here. Yeah.

Sylvain Perrier:

… yes. The perfect segue.

Mark Fairhurst:

There you go.

Sylvain Perrier:

So I’m going to let you spill the beans.

Mark Fairhurst:

Well, it came out about a week ago that AutoStore, which is the Norwegian based robotics company that we know pretty well and we’ve had Andrew Benzinger on our show. We’ve talked a few times about it. AutoStore is suing Ocado for a patent infringement.

Sylvain Perrier:

Right. It’s interesting because if you’ve ever been involved in any form of litigation and I’ve been through my fair share of litigation and going after people that are infringing on my intellectual property and my company’s intellectual property, as well as defending. The first incarnation of Mercatus was Springboard Retail Networks, where we designed a computer that goes on a shopping cart, which we own a tremendous amount of IP, not just design, but also methodology patents and software patents. And now we know that Amazon’s got a cart that’s out there and there’s Casper who has this other type of flair flavor of a cart. And we’re not patent trolls and there’s a way, and there’s a process to be able to kind of follow if you want to go down the road of protecting your IP.

Sylvain Perrier:

What I find interesting in this case here between AutoStore and Ocado is the reality is in North America right now, Ocado has two exclusive relationships. First one in Canada with Sobeys which kind of bars them from doing business with any other retailer in Canada. And then… Okay, let’s be honest here in Canada, the only other suitor that would make sense would be potentially Walmart, Canada, which I doubt that would occur.

Mark Fairhurst:

Yeah, and we know that Walmart in the US at least is working with Alter Innovations.

Sylvain Perrier:

Correct.

Mark Fairhurst:

Which is an AutoStore type provider.

Sylvain Perrier:

Right. And then you have in the United States Kroger.

Mark Fairhurst:

Mm-hmm (affirmative).

Sylvain Perrier:

So what we don’t know yet out of this case, will this put a kibosh on Sobeys in Canada rolling out its second CFC in Montreal? And will it prevent Kroger from doing the same? So we don’t know if there’s been, with this lawsuit, a cease and desist in terms of ruling out any technology. The reality haven’t been privy to a lot of litigation and sat in on some of these matters, some of my own, some with others. It is always in the best interest of the plaintiff to allow the defendant to continue generating revenue with the view that, “Hey, if your Dean is infringing, then I have a right to that revenue.” Right? That’s the first thing.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

I don’t know.

Mark Fairhurst:

So what do you think AutoStore’s end game is here?

Sylvain Perrier:

It’s tough to say because on one side Ocado has put himself to get into the North American market has gone ahead and signed an exclusive arrangement with two of the largest players and chances are, it’s not a lifetime exclusivity. It may be a timed exclusivity. So giving them the opportunity to prove out their technology, work out the kicks in the North American market, and then hopefully use that as a kind of a beacon to be able to get more clients. But at the same time, if it drums up enough interest in MFC technology or CFC technology, this is a great opportunity for the companies like AutoStore to be able to jump into the market and to go ahead and take all the other retailers that Ocado won’t be able to work with. You can think of, I don’t know, Publix and the list goes on. I mean, I don’t know who they’re working with, but…

Mark Fairhurst:

Well, yeah, we know that AutoStore has an agreement with H-E-B. I don’t think it’s rolled out yet, but I think that was recently announced. But you’re right. I mean, there is that tier of retailers that they could use as part of their addressable market.

Sylvain Perrier:

Yeah. This is tough to say, but if in one previous experience that I’ve had, where we were approached by a US-based holding company, basically represented by a law firm… I won’t necessarily call them a patent troll, but they came aggressively after us under the guise that we were potentially infringing on some of their technology which we ended up subsequently settling with them and licensing a bunch of things. But in the conversations with them, what became apparent is the family that owned the portfolio really wanted auto managing the portfolio. And they were actually, they offered for us. They wanted to know if we would buy the portfolio.

Mark Fairhurst:

Interesting.

Sylvain Perrier:

And buy everything out. So when you become a patent troll just… Everyone’s never done this. Let me just give you a Sylvain Perrier is 101 in patent trolling.

Mark Fairhurst:

We have the episode title now.

Sylvain Perrier:

Yeah, we do. Patent trolling 101 with the folks over at Mercatus.

Mark Fairhurst:

Most popular show ever.

Sylvain Perrier:

Yeah, probably. It’ll surpass Brittain Ladd’s show.

Mark Fairhurst:

That’s right.

Sylvain Perrier:

So what you do, let’s assume you have a portfolio more than just one patent, one’s never enough. What you normally do is there is a series of technology/law firms that are very much specialized in this. And what you do is you bring to them your portfolio and what they will do is they will assess the potential of infringement that’s out there. So, there was a couple of companies in Ottawa that were very, very, very skilled in the design of memory technology. And they amassed a massive portfolio and they eventually stopped making memory technology and became “their own troll.” And it’s not a nice word, but basically maybe they’re defending their rights.

Sylvain Perrier:

So what you do is once they’re done the assessment, if they think there’s value in this, they will set up a limited liability company. You transfer your intellectual property into the hands of that limited liability company. It is co owned by the owners of the IP and as well as the firm representing and any money that they get out from going after, getting licensing fees and so on is used to pay down first and foremost, the legal costs. And then post that whatever’s left is split.

Sylvain Perrier:

Depending on the arrangement you have, this is not necessarily a 50, 50 split, but it can be 80, 20 doesn’t really matter. But that’s typically how it works. Now, what they don’t tell you, and this is the assessment you have to make as a “someone who wants to defend their own intellectual property” is you have to be very much prepared to have your name sullied. And what that means is if I look at the 35 plus patents and my name’s on it, and I’m not dead, I’m very much alive, I woke up this morning, I’m like, “Oh, I have a pulse.” So that’s really what sticks with people and that’s the reputation loss of becoming a patent troll.

Mark Fairhurst:

Right. First of all, I appreciate the education. Secondly, I’m glad you pronounced the Ottawa, not the way Tucker Carlson-

Sylvain Perrier:

How does he pronounce it?

Mark Fairhurst:

… he doesn’t, it’s Ortawa, or some bizarre pronunciation. But thirdly, that begs the question, and this goes back to what is the AutoStore? I mean, because you got to think if AutoStore’s going after Ocado, the biggest fish, they’ve got fabric, they’ve got Takeoff technologies, they’ve got Alert Innovation, everyone playing in the same space that they could go after. Alternatively for Ocado, I think the simplest thing would be just to buy AutoStore.

Sylvain Perrier:

They could be, they may could very, very well be. The case, it’s an odd way of doing it. I mean, let me see you then let me ask you to buy me, but like, yeah, I’ve seen those things materialize in the past, right? If you can’t join them try to beat them some way to market. And I find it odd because I try to dig up the initial filings of the case. And I don’t want to pay $2,000 to our legal counsel to kind of dig it out for me so I can read it. But listen, I think this will all get settled. This will not. Because here’s what’s going to happen. So immediately Ocado’s legal counsel in the UK has a very strong IP process, it would be immediately digging up first and foremost… So when you go on patent you go through the patent feasibility process and they’re very strong.

Sylvain Perrier:

The lawyer and IP counsel will have dug up for you what potentially you may be infringing on to give the inventor the opportunity to circumvent. And if they felt that there’s a risk of infringement, but there really isn’t, the law firm would have issued letters of opinion of non-infringement. If those exist, those are being shared. If they don’t exist then the biggest thing that Ocado is going to have to do to put AutoStore on their back heels is go and submit IP review process to determine… To invalidate the IP. And that’s just… I mean, if you’re AutoStore, I’ll tell you if that occurs. When we lived through it in Canada with Research in Motion-

Mark Fairhurst:

Watch out.

Sylvain Perrier:

… watch out because their cost is significant. And if you’re not closing deals, you’re not making sales. And here’s what I would hate… I would caution when these things go this way, you have to have deep pockets and no grocery retailer wants to get in bed with a vendor. I think anyways, that is going through. I’ve seen it so many times happen and I hope and I pray that this will be resolved for those two companies. I know, I respect both of them. And I think Brittain Ladd is their Chief Marketing Officer over at AutoStore now.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

He’s a wonderful gentleman. And he’s a smart guy. But I get it like they’re defending their rights and that’s okay too, right?

Mark Fairhurst:

Yeah. It is becoming increasingly complicated as the technology companies move more into grocery. Speaking of which-

Sylvain Perrier:

Yeah.

Mark Fairhurst:

… Amazon.

Sylvain Perrier:

Oh my God. I never say, oh my God on a podcast before. Oh my God.

Mark Fairhurst:

G-A-W-D.

Sylvain Perrier:

Yes, it is-

Mark Fairhurst:

What was the news there?

Sylvain Perrier:

… well, so it’s the fact that they bought a percentage of SpartanNash stock and it was disclosed. I mean, I wasn’t aware, I think, I don’t know if the industry was aware that the Nash mint side, the distribution side of SpartanNash was supplying Amazon, I think since 2015, 2016. And they bought, I think 14%, I believe.

Mark Fairhurst:

Yeah, round it up it’s like 15 but it’s… Spartan it’s a significant investment.

Sylvain Perrier:

It is.

Mark Fairhurst:

Much higher than your typical supplier and vendor or a customer relationship in the grocery space to secure a line of a product of supply. So that’s why I think eyebrows are being raised.

Sylvain Perrier:

Yeah, they aren’t like surprisingly enough, like we don’t get to go to trade shows and hear the rumor mill anymore. So, what’s the reaction amongst the folks? I think the reality is Amazon has always been a company that’s not afraid to pay to learn and then to eventually buy something. So, I remember many years ago being in the Southwest, walking into a grocery store with a fellow client at the time, and I was surprised. I mean, there was tons of Amazon people running around and kind of made the comment I said, “Oh, this is wow. You’re working with Amazon. That’s barely risky because they have the culture that they will learn and test and try things and then eventually make it their own. Aren’t you worried?”

Sylvain Perrier:

“No, we think it’s a great partnership, blah, blah, blah. We’re not having to use our labor and so on.” “Okay. Well that’s great.” Well, lo and behold, they turn around, they buy Whole Foods. I’m not suggesting that’s going to happen in the case of SpartanNash. I think what Amazon in my estimation is if they really want to scale quickly in the world of grocery, buying or building stores is the least of their problems. It’s that’s the easy part, and I know that the retailers that are listening, “Sly, you’ve never built a store. You don’t know what it’s like.” Yeah, no, I’ve never built a store, but been in this space for almost 22 years and I’ve talked to many of grocers that have shared their woes and the construction experts and so on. The reality is, is Amazon’s distribution network as amazing as it is, as fast as it’s going, we know that they’re building their second largest distribution center in Canada on the outskirts of Ottawa.

Sylvain Perrier:

Thank you, Tucker Carlson. And they’re going to be building another one here in North of Toronto. [Hawk 00:36:16] Sound as most people may not know. It’s not the same in those distribution centers. I can’t see how do you do half general merchandise and then half frozen and the logistics of carrying that stuff. I think you just go out and you just get someone to do it, to let you scale fast. And then you come back, you figure it out and you partner more, or you build your own.

Mark Fairhurst:

It’s the same example made new that you just gave. It’s they’re learning the fresh and frozen and private… And to be honest private label business in grocery from a distributor like SpartanNash.

Sylvain Perrier:

Right. Well, I don’t know who makes Whole Foods private label. It might be Daymon worldwide over in Connecticut super company. I mean, those guys are embedded with a lot of the retailers. I mean, the Kirkland brand for the most part, I think is Daymon quite frankly. I think here’s what I want to tell our listeners, don’t be dismissive of Amazon. This isn’t an experiment for them. This is the reality. We’ve said this on countless shows, we’ve said this, and we have rewritten about this in countless blog posts articles, household penetration rate for groceries, 98%, the baskets are larger now for the most part, share of wallet is being concentrated with a few retailers because of the pandemic and Amazon, if they can tap into that household penetration rate to feed into everything else that they do on the media side, on the whatever side, this is going to benefit them.

Mark Fairhurst:

Absolutely.

Sylvain Perrier:

And if you thought it was an experiment before they bought Whole Foods, the purchase of the Whole Foods should have taught you, if you thought they weren’t going to open their own stores, the store in Woodland Hills, California should teach you what they can do. And I think like when we decided the tile for this show to a certain extent, there’s a lot of great Silicon Valley companies that are coming to the rescue of retailers to support them with true partnership and so on. But there are those like an Amazon that’s just going to come to the table to crush and to dominate. And I don’t think… I’m not sure how Amazon could they survive the trade down and trade out? I think 100% because they have other assets that can fund their grocery business to nauseum.

Mark Fairhurst:

Yeah. I mean, they’ll deny till the cows come home.

Sylvain Perrier:

Sure.

Mark Fairhurst:

That they leverage other revenue streams from other lines of business. But the reality is they do it. I mean, I think the report that just came out of Congress on the big tech players definitely as far as Amazon is concerned see it as a unfair advantage against retailers.

Sylvain Perrier:

Yeah. So I watched that the whole proceeding was in… I think Tim Cook got off-

Mark Fairhurst:

Light.

Sylvain Perrier:

… oh, light. I’m sure if he would have been there live, they would have hugged him. It’s Apple, who doesn’t like Apple? But I felt, you have politicians that are not business and technology experts asking questions that are likely not even prepared by them and not giving the opportunity for the person they’re asking the question to give a valid answer. I don’t think Jeff Bezos gets out of bed in the morning and says, “I’m going to screw everyone in retail.” I don’t think that’s the case. I think it’s the reality is capitalism is a great system, but we have a tendency when it gets too good for some to want to punish it.

Mark Fairhurst:

Yeah.

Sylvain Perrier:

And I don’t agree… I subscribed to the idea of free markets and I can debate about this till the cows come home, till Jeff Bezos buys those cows. And we don’t let these-

Mark Fairhurst:

He needs the milk.

Sylvain Perrier:

… he needs… Well, he’s going to. But, in case he’s got to sell-

Mark Fairhurst:

He’s got all those stores he’s going to own.

Sylvain Perrier:

… and he’s going to sell cheaper bananas than Trader Joe’s, which was like, everyone was just shocked at, “Who would sell bananas cheaper than Trader Joe’s, come on, it’s the free market.” This is the way these things are supposed to work. And I know we tend to want to punish these people for kind of taking these bold moves and so on now. There’s also this notion of social responsibility, which I’m kind of both sides of the coin.

Sylvain Perrier:

When you get really good, how much… You kick it back to society. And I think we see that in certain forms. I get more concerned, not so much of what these companies are going to do, but what is grocer retail and retail in general going to do to innovate. And I know that’s very difficult when your margins are 3%, your margin of error is very, very slim in anything you do, maybe like scrutinized like crazy or even more concerned is the social responsibility Facebook has in its dominant voice and controlling a platform that, what is it… How many users now, three billion maybe?

Mark Fairhurst:

Yeah. At least.

Sylvain Perrier:

That then fundamentally concerns me how it can be used to just-

Mark Fairhurst:

Half the planet.

Sylvain Perrier:

… to fundamentally shift the thinking of people that starts to concern me, right?

Mark Fairhurst:

Yeah.

Sylvain Perrier:

Yeah. I mean, so there’s like crazy things happening in the world, and guess what guys, it’s not going to get any better.

Mark Fairhurst:

Listen, we got one other topic we wanted to-

Sylvain Perrier:

Yeah, go ahead.

Mark Fairhurst:

… which is our friends at Instacart announced another round of money being raised. I think their valuation now is over 17 billion US.

Sylvain Perrier:

17 billion. Yeah. So it’s well, impressive growth, right?

Mark Fairhurst:

Yeah.

Sylvain Perrier:

I think it’s, they went from a previous valuation of 13… I want to say 13.6, 13.8 up to 17, which I think is fundamentally tied to the growth that anyone that’s in e-commerce is seeing today. Which I think is great. Listen, I get excited when any tech company is doing well, is raising capital and is fundamentally trying to just kind of change. They recently had an article on them and Progressive Grocer, with their president Nilam. It’s funny because they see their business model as being kind of four facets, four sides. So you have the consumer, the retailer, the CPG, and then the personal shopper. I can not imagine the challenges of kind of creating that equation, that balances out all of those four sides to it. So it’d be interesting to kind of see what happens in their continued partnership with grocery retail. I’m not hearing a lot about Shipt in the market.

Mark Fairhurst:

No.

Sylvain Perrier:

The marketing has kind of quieted down.

Mark Fairhurst:

I think the news really is about Uber. You’ve seen Uber Eats commercials on TV.

Sylvain Perrier:

Yes.

Mark Fairhurst:

We do know that Instacart was able to get Uber to basically correct their ways as far as Cornershop was concerned.

Sylvain Perrier:

Yeah. And that’s… I hate to say this. We live this at Mercatus. We’re constantly blocking people from scraping data trying to anyways. And when I say data, it’s like product images, and just trying to stop those people from doing those things. And it’s not easy. I mean, I remember at one point, the servers were coming from Microsoft Azure. So guess what we did, we fundamentally blocked anything coming from Microsoft.

Mark Fairhurst:

It is because at the end of the day, it’s theft.

Sylvain Perrier:

Sure.

Mark Fairhurst:

You mean the product, image data, we don’t produce all of it. And we subscribe to data providers in order to like… We license that data for the benefit of our retailers. I understand that Instacart also took some proprietary imaging, which has a cost to it. It’s not a good business practice.

Sylvain Perrier:

Yeah. And this goes back to like the whole conversation on IP, right? Fundamentally, any individual in business has a right to protect their intellectual property. So like, why wouldn’t you? So I’m excited to see what’s going to happen in grocery leading up to Thanksgiving. I got to think-

Mark Fairhurst:

It’s going to be a interesting fall.

Sylvain Perrier:

… I got to think Mark it’s, this should be like big bonus Thanksgiving for a lot of retailers. People not going out to restaurants. Kind of staying local, staying with their families. I got to assume it’s going to be good.

Mark Fairhurst:

Yeah. I mean, it seems. We just had the Canadian Thanksgiving. I don’t know what the numbers were in terms of grocer retail. I guess those will come out in a few weeks, but you’re right. I do get a sense a lot of people were staying at home and spending it with a very close family unit. And I’m assuming it’s the same thing it’s going to happen in the US.

Sylvain Perrier:

Yeah. I was actually told that Canadian Turkey sales were down.

Mark Fairhurst:

Really?

Sylvain Perrier:

Yeah. I don’t know if that’s true, but I overheard it from one Canadian grocery retail executives.

Mark Fairhurst:

Interesting.

Sylvain Perrier:

It’s the first year that Turkey sales are down.

Mark Fairhurst:

I guess some fewer people gathering and having smaller dinners.

Sylvain Perrier:

Yeah.

Mark Fairhurst:

Or if any.

Sylvain Perrier:

Well, we ended up buying pre-sliced pre-cut turkey at a place for two people. All right. So Mark, how do people get to like this show?

Mark Fairhurst:

They can hit the subscribe button. They can hit the like button on digitalgrocery.com. That would be the easiest way. Follow our YouTube channel, follow us on social media, or they can always reach you at a sylvain.perrier@mercatus.com and me at mark.fairhurst@mercatus.com.

Sylvain Perrier:

Absolutely. Ladies and gentlemen, it’s been a pleasure having you on this just Mark and I show, I guess you could call it that. And then when we went… Normally it’s 30 minutes. We went for how? We went for 47 minutes.

Mark Fairhurst:

Almost an hour.

Sylvain Perrier:

Yeah, that’s awesome. That’s great folks. Thank you very much. Talk to you soon. Peace.