00:00:04:29 – 00:00:22:04

Sylvain

Ladies and gentlemen, welcome to Season five, Episode four of Digital Grocer. I’m your host, Sylvain Perrier, president and CEO of Mercedes Technologies. And joining me is my co-host, Mark Fairhurst. Mark, welcome.

 

00:00:22:04 – 00:00:33:03

Sylvain

Thank you, sir. Pleasure to be back, as always. Good to see you again. Yeah, it’s great to see you. You know, in the last few episodes, we were on the road touring across the country.

 

00:00:33:03 – 00:00:42:05

Sylvain

We drove something like 4200 kilometers in, which is 2500 miles roughly.

 

00:00:42:05 – 00:00:44:18

Mark

It was a long, long, long trip.

 

00:00:44:18 – 00:01:06:29

Sylvain

In any case, you know, one of the reasons we Mark and I spend an enormous amount of travel time and traveling is just not about visiting our existing retailer base and our prospective clients. It’s fundamentally to understand what’s happening in America inside brick and mortar space around grocery retail.

 

00:01:07:10 – 00:01:13:15

Sylvain

How’s that translating back down into the omni channel experience?

 

00:01:13:15 – 00:01:39:11

Sylvain

And one thing that, you know, we’re paying specific attention to is staffing levels, out of stock conditions. We’re looking at product availability and how are retailers evolving. The whole aspect of fulfillment, whether it’s delivery, curbside, click-and-collect and so on. And to really kind of squeeze the costs out of the supply process and getting groceries into the hands of retailers.

 

00:01:39:11 – 00:02:05:18

Sylvain

And I think most of our listeners are paying attention to the myriad amount of research that we’re doing with the folks over at Brick Meets Click and the data that we’re publishing. And one of the things that we did at the top end of the pandemic now, if we can still call it a pandemic, I think at this point, I’m not sure if the CDC has said “is COVID endemic?”, and I don’t think we know just yet.

 

00:02:06:02 – 00:02:08:18

Mark

I think it’s safe to say it’s endemic.

 

00:02:08:18 – 00:02:41:04

Sylvain

Well, there you go. So, Mark, Marcus, Mark has trumped Fauci, Dr. Fauci. And it is clearly now we are in an endemic situation I will let the W.H.O. know about this. In any case. What we did is at one point we wanted to understand specifically on the West Coast, because the West Coast in North America has always been to a certain extent a beacon of wanting to understand what is happening in this space.

 

00:02:41:04 – 00:02:44:15

Sylvain

The space around digital commerce, e-commerce, around grocery.

 

00:02:44:15 – 00:03:17:03

Sylvain

You know, historically, we used to look to the East Coast because it would be the first to be influenced, influence coming in from Europe. I think that has changed in the last ten years and it’s shifted out into approximately around Silicon Valley and kind of stretched up and down the coast. And we brought in Zach Wilson who’s director of e-commerce over from Raley’s to kind of help us understand how is a really preparing itself and what is what did it do to kind of shift its priorities around digital commerce.

 

00:03:17:03 – 00:03:36:12

Sylvain

And Zach kind of came on the show and I think in fact, I think it was a second time at the time that we had him on the show and we wanted to really focus and this is going to be a three part series, this podcast. So this is part one. Part one’s going to be focused around understanding transformation in retail post-pandemic.

 

00:03:37:07 – 00:04:02:12

Sylvain

We are right now, I think everyone knows this. We are in an inflationary period in North America and quite frankly, across the world. We’re seeing geopolitical influence coming in from what’s happening in Ukraine, into Europe, into North America. With Russia entering into the war, we’re likely going to see some other challenges come the Fall the Fed should just raise the interest rate, and that is going to have an impact on it.

 

00:04:02:12 – 00:04:32:05

Sylvain

It has had an impact on food. It potentially plunge and economical drivers aren’t saying this just yet, but there’s a risk of that. We could enter a recession sometime in 2023, which could last. And so we want to focus on this in part one. Understanding, quite frankly, is how retailers change. Part two, we’re going to be bringing in another retail executive and part three is going to be kind of really cool.

 

00:04:32:08 – 00:04:58:05

Sylvain

We are going to be working with a surprise guest that will come in to kind of do the lay of the land, what we can expect in the next little while, which I think will be really informational for our listeners out there in terms of preparing and potentially, I would say weather the storm. But if I can kind of take a different approach to this in terms of just listening, what the media is saying where other sources of information.

 

00:04:58:27 – 00:05:09:19

Sylvain

So joining us today to kind of answer our questions is Zach and Zach, we want to say thank you so much for joining us again on Digital Grocer

 

00:05:09:19 – 00:05:15:21

Zach

No. Thanks Sylvain, for that nice introduction and recap and it’s a pleasure to be back on with you and Mark today.

 

00:05:21:22 – 00:05:49:02

Sylvain

Let’s just jump in. So COVID19 hits the West Coast, you know, coming in across the country from Los Angeles perspective and from New York engulfing the nation into this pandemic. And now we think to a certain extent we’re in a bit of a period of reprieve. I wouldn’t say it’s necessarily subsided, but I think we’re seeing some definite changes.

 

00:05:50:03 – 00:06:06:29

Sylvain

Have you at Raley’s and in your conversations with other retailers that might be in your trade group, or are the retailers that you’re interacting with. Have you seen a shift in how consumers are fundamentally interacting with with e-commerce platforms?

 

00:06:06:29 – 00:06:20:20

Zach

Yeah, it’s been very interesting to watch how the consumer interaction with the e-commerce platforms have changed since, you know, some of the restrictions and some of the COVID-19 has subsided.

 

00:06:21:04 – 00:06:51:07

Zach

When you look at the overall volume that happened, you had that big, big explosion of demand for e-commerce when everything was being shut down, especially here on the West Coast. And then as restrictions have lifted, you’ve seen that demand start to go down. But I believe, you know, based on our volume and based on what I hear talking to other retailers is that where we’ve landed is higher than where we anticipated being coming out of this most.

 

00:06:51:07 – 00:07:16:06

Zach

It expected us to be back at a volume that was around pre-COVID levels. But I think most retailers, including us, have seen a significant increase from that. The other interesting thing that we’re seeing is that consumers for the better half of, you know, two plus years have been relying on e-commerce as a new way for them to shop and get their groceries specifically or their product specifically from retailers.

 

00:07:16:24 – 00:07:33:06

Zach

So a lot of consumers are now anticipate or expects, you know, a lot of the retailers to have their own e-commerce platforms or partner with, you know, companies such as Instacart or DoorDash to provide them with those services.

 

00:07:33:06 – 00:07:55:00

Zach

The other aspect that has kind of changed or shifted as well is that those customers that used to be extremely brand loyal are now, aligning themselves with an Instacart solution or a DoorDash solution, because that was easy for them to access and it gets them their groceries just as quick as it would be coming from traditional grocery retailers.

 

00:07:55:22 – 00:08:26:26

Sylvain

The odd thing, though, is you saw this big boom of this ultra fast or ultra convenient delivery service platforms pop up over the last couple of years, and those are starting to subside as well. So you’re really being left with your traditional grocer banners and then the big players of Instacart and DoorDash. So I know it kind of rambled through there a little bit but the consumer’s behaviour is has changed to expect e-commerce to be an option that’s available.

 

00:08:27:09 – 00:08:38:15

Zach

And that just is now put more and more pressure on each of the retailers as well to deliver an experience that meets those consumers demands.

 

00:08:38:15 – 00:08:52:02

Sylvain

Yeah, that’s extremely well said. And there’s one thing that you said that really resonates. Rapid delivery, and you know, we publish a blog post and I know I’m going to botch the title here.

 

00:08:52:02 – 00:08:59:04

Sylvain

So, Mark, I’m going to apologize to you and your team in advance, is 15 minute delivery seen its 15 minutes? I don’t know if I got that right.

 

00:08:59:04 – 00:09:01:10

Mark

That was good. Close enough.

 

00:09:01:10 – 00:09:15:09

Mark

That’s great. But what’s which really odd is we had a large or actually our country’s largest retailer, Loblaws announced in the trades that they are doing rapid delivery in 30 minutes.

 

00:09:16:07 – 00:09:49:29

Sylvain

And this is where this is flabbergasting to us because 50% of Canada’s population lives in the Toronto market. So I can’t understand how a 30 minute rapid delivery will actually make sense in this market considering I think 65% of the people in this area of the country are actually, I’m exaggerating on the number. I think it’s below it’s around 40 are actually new Canadians where rapid delivery is not a given from where they’re coming from their home country.

 

00:09:50:12 – 00:10:05:14

Sylvain

And so I can’t understand how this is going to make sense in our country and Zach, you’re seeing this from a perspective of an individual that lives in California, which is just amazing if you try to extrapolate that to what’s happening here in Canada.

 

00:10:05:14 – 00:10:15:02

Zach

Yeah. And what’s interesting is that the rapid delivery works best in those highly densely populated metropolitan areas, such as Toronto for you.

 

00:10:15:18 – 00:10:35:17

Zach

And I did see that at Loblaw announcement as well, which was interesting because, you know, I’m not a big proponent of rapid delivery myself. Because I struggle to figure out what do you actually need in the next 15 minutes. And there’s a few items that you can think of, like diapers for mothers and things like that, or medicine especially in this day and age.

 

00:10:36:03 – 00:11:07:04

Zach

But being able to execute is, I think, the biggest struggle with that. And the other aspect to this is most of your marketplaces or platforms that you order purchase groceries from are in that one hour to two hour range as it is. So adding that extra, you know, convenience factor to it, although it sounds great and as an idea, the actual execution process is probably a few years out from being fully mature.

 

00:11:07:21 – 00:11:24:13

Zach

So you’re going to see, in my opinion, more and more of these, you know, companies that have popped up over the last couple of years for this ultra fast start to go away or be absorbed. And you’ll see like DoorDash, with the Loblaws announcement being one of the key players moving forward with this.

 

00:11:24:13 – 00:11:27:18

Sylvain

Yeah, I would agree. And so you’re at the forefront of this.

 

00:11:27:18 – 00:11:57:00

Sylvain

You’re living this on a day to day basis. You know, Mercatus, we’re there to help our retailers in terms of execution around platforms. And we’re, you know, we’re starting to see the effects of inflation to a certain extent. And what’s interesting, what was reported out of the US Bureau of Statistics is retail sales moderately declined, but actually food sales, I believe up 1% Mark for the for the last month.

 

00:11:57:00 – 00:12:01:02

Mark

In May they were up. They were up 1.8%.

 

00:12:01:02 – 00:12:02:23

Sylvain

1.8% which is interesting.

 

00:12:02:24 – 00:12:09:12

Sylvain

Now Zach, are you seeing the impact of inflation on the make up of baskets?

 

00:12:09:12 – 00:12:31:02

Zach

We are and it’s interesting. We haven’t seen anything like this, at least I haven’t seen anything like this in my time in the grocery industry. The inflationary pressures that we’re getting not just from the cost increases from suppliers on core goods and materials, but everything else is being passed down now, at least for regional retailers.

 

00:12:31:02 – 00:12:54:13

Zach

Such as Raley’s like it’s impacting the basket big time. You’re seeing more supply chain challenges because of not being able to get the products to begin with. But now the products you are able to get, the prices have been increased on them. And as a high end retailer, that pressure on price for those products is changing the way that customers are shopping.

 

00:12:54:28 – 00:13:15:13

Sylvain

So you’re seeing less and less of the demand for the national brands and more of the demand for private label coming into play. You’re also seeing customers and shoppers being more strategic on the products in which they’re purchasing from you as a traditional grocer and their share of wallet is starting to split out now to other retailers such as Walmart, Costco and Target.

 

00:13:16:29 – 00:13:39:12

Sylvain

Yes, we are essentially we’re seeing the same effect to certain extent, I would say, from what we live through 08′ or 09′ with the economical issue with the housing crisis where we literally saw and for lack of a better example, you know, someone if I use an East Coast example, if you shopped at Harris Teeter, you went into a bottom dollar foods.

 

00:13:39:13 – 00:14:03:29

Sylvain

If you couldn’t do that, maybe you went to Walmart. If you couldn’t do Walmart because that’s you know, most people don’t know this. 30% of Walmart customers, United States can’t qualify for a bank account. And then so those people trade down into food banks, unfortunately. So you’re seeing the exact same thing right now in your market. Where people are trading out, trading down and being more strategic of what they’re putting in their basket.

 

00:14:04:24 – 00:14:31:07

Zach

We are. We’re starting to see that slight shift happen, but it’s early indications on what’s going to happen over the next couple of months. And going back to the increase in grocery sales inflation is really driving that because you’re seeing a reduction in units as well. So you’re getting in smaller baskets coming through the traditional grocers. And that’s on par with what we’re seeing at Raley’s, but also across some of our other market competitors as well.

 

00:14:37:02 – 00:15:06:06

Sylvain

OK, great. And you know, the debate we have and it’s I wouldn’t say it’s a debate because you know, we do so much research. We know that there are certain markets where delivery seems to be more popular and but we also see there are markets where curbside completely outranks delivery, and sometimes a two to one ratio and you guys have been pioneers in e-commerce forever.

 

00:15:07:06 – 00:15:14:05

Sylvain

What do you get? What are you seeing in your data? Is it a fight between both or there’s a clear distinct winner?

 

00:15:14:05 – 00:15:33:22

Zach

Yeah, oddly enough, as the numbers started to come down with COVID and along with the sales and demand we probably saw a deeper decline in delivery demand earlier than most of the market did. But over the last couple of months, we’ve seen an increase where most have seen that start to continue to go down.

 

00:15:34:26 – 00:16:01:18

Zach

And where we’re located, we have the the mix of, you know, metropolitan city with San Francisco, Sacramento. But we also have the rural, rural areas and communities in which we operate in. And we’ve seen the demand in the rural areas increase for delivery along with the increase inside of the metropolitan areas as well, which is unique. We’ve also seen an increase, though, of the utilization of marketplaces such as Instacart and DoorDash.

 

00:16:02:08 – 00:16:26:25

Sylvain

So that’s going to skew that delivery number as well for those customers using those. Our internal platforms, though, we’ve seen that increase happen. And pick up to your point, Sylvain, but our delivery volume once again started to maintain a constant flatline, if not slight growth that’s happening.

 

00:16:26:25 – 00:16:46:21

Sylvain

The interesting thing that’s coming, though, is because of this inflationary pressures that we have and the cost of gas here in California being as high as it is, customers are starting to realize, well, shoot, I can save that one or two gallons of gas, go into the store and just absorb a delivery fee.

 

00:16:46:21 – 00:16:54:08

Sylvain

That’s going to be half the cost of that price. So that’s something that’s going to be interesting to watch at least over the next couple of months.

 

00:16:54:08 – 00:16:59:04

Mark

Yeah, it’s an interesting dynamic we hadn’t we hadn’t considered that.

 

00:16:59:04 – 00:17:20:17

Sylvain

Yeah. It’s we you know, there was a there was a comment made on a financial blog post the other day and, you know, I wouldn’t say I’m super educated in minimum wage amounts in in California because I think it really depends on the industry that you’re in what’s what’s the average price for a gallon gas? Out of curiosity?

 

00:17:20:17 – 00:17:32:02

Zach

I believe it’s over $6 right now for sure. And just as at least in my area, in Sacramento region, we’re about 630 for regular gas right now.

 

00:17:32:02 – 00:17:52:26

Sylvain

Yeah, that’s at least a $1.30, a $1.50, more than what we see in some of these states on the East Coast. That’s just incredible. And if you’re, you know, a wage based an hourly based employee and quite frankly, if you’re a gig worker, that’s it’s really hits the pocketbook.

 

00:17:52:26 – 00:17:57:03

Sylvain

So it’ll be interesting to see what we see for the results on this item.

 

00:18:00:26 – 00:18:22:23

Sylvain

Now, I’m curious, what are some of the tactics that you would recommend to any of the retailers that are listening to to the podcast or watching this video on YouTube. To keep your customers engaged with the brand during the inflationary period and heaven forbid if we enter into a recessionary period?

 

00:18:22:23 – 00:18:35:09

Zach

Yeah, that’s a great question. One of the things to always remember is that if you have customers engaged with you, especially on the digital level, most likely you have some sort of loyalty program or some way that you keep engaging with them.

 

00:18:36:02 – 00:19:00:18

Zach

But it’s really driving value and especially around inflationary periods like where we’re in now and continue to be in really looking at the KPIs that drive customers in and and also taking into consideration the supply chain. So making sure that you have ample supply of those products that you are going to promote at that margin, compressed rate. That’s a huge one.

 

00:19:00:28 – 00:19:27:26

Zach

The other piece is really engaging the customers on the platforms and the ways in which they shop with you over the last two years and to continue to involve them in, you know, any sort of marketing tactics or retention tactics that you can. But it’s got to be meaningful if a customer is just getting an email from you saying, hey, it’s, you know, Monday, come shop with us, that’s not going to impact shopping trip. Of course,

 

00:19:27:26 – 00:19:50:03

Zach

Now the other piece, too, to really pay attention to is your private label brands as well. For those retailers such as Raley’s, we have a pretty strong private label presence and we’ve elevated that over the last couple of years. And that, I think has helped drive value in the mind of customers, especially with our loyalty program in what we call our Raley’s Dailys.

 

00:19:50:17 – 00:20:11:13

Zach

And I know other retailers have similar programs that they’re pushing more than they ever have. Before, but ultimately what it comes down to is just reminding the customer that you’re you’re trying to give them the best value that they can and that they don’t necessarily need to go to a Walmart or a Target or big box store to get that value.

 

00:20:11:25 – 00:20:24:25

Zach

But you can still be their customer for them. As a local retailer, say potentially save that gas money that you would have to spend to go to the bigger box retailer.

 

00:20:24:25 – 00:20:37:21

Sylvain

Love it. Now, you said something again, which I’m not I’m not surprised. To the listeners out there, so if you pay attention to their trades, you likely have seen that.

 

00:20:37:21 – 00:21:13:07

Sylvain

Sobey’s it’s part of the Empire Group, has decided to ditch the Airmiles program and there’s various reasons for that, but they’ve decided to buy into the Scene Plus program, the loyalty program that is originally founded by Scotiabank, one of Canada’s largest, out of the five largest banks. It’s one of them and also founded by Cineplex Odeon, the owners of Cineplex also owned, which says, What’s the Mark I’m just drawing a blank here.

 

00:21:13:19 – 00:21:25:06

Sylvain

Cherry’s company, they own, also a large US based retailer, discount retailer, as Mark thinks about that, I’ll just continue I’ll just continue wrangling here.

 

00:21:25:06 – 00:21:28:00

Mark

I know it’s Onyx Corp.

 

00:21:28:00 – 00:21:41:17

Sylvain

Onyx Corp. So you guys, he’s going to go you’ll see who they own. But in any case, so, Sobey’s has bought into this program. And the one thing we wanted to write a blog post on is this notion of what we call the loyalty equation, right?

 

00:21:41:17 – 00:22:13:13

Sylvain

Because loyalty programs are fundamentally about how do you not just retain, but how do you convince a consumer to buy more. And so Zach, a by saying what he said triggered this is the perfect opportunity for a retailer who needs to kind of learn the tricks of the trade a loyalty program really pay attention to how Sobey’s is going to roll this out across the country and how they’re going to communicate back out to their customers to really drive value for the customer.

 

00:22:13:13 – 00:22:52:19

Sylvain

Right because in our country Loblaws penetration rate of their optimum program is about 60% their PC plus programs about 60% of the population is using out of 37 million and Scene is below 2% of their population. So it will be very interesting to see how a true high low retailer drives the loyalty equation and makes a customer feel like they are getting value for the dollars that they spend. And I think it’s going to be real time learning the best you can get better than going to take a loyalty program at your local university.

 

00:22:53:26 – 00:23:07:22

Sylvain

Zach, I want to say thank you so much. It’s been a pleasure having you on the show. As always, you always have the best insightful responses to our questions. And the best of all is you’re actually helping us educate our listeners. So thank you.

 

00:23:07:22 – 00:23:11:07

Sylvain

Thank you once again, Sylvain and Mark, always a pleasure to be here.

 

00:23:11:07 – 00:23:11:21

Mark

Thanks Zach.

 

00:23:11:21 – 00:23:37:19

Sylvain

Awesome. Folks, stay tuned. Part two of this podcast will be out, I would suspect, in a couple of weeks. We’re going to be talking to John Luco. John is the retired president and COO of Giant Eagle. He’ll be sharing his insights of how to retailers react to inflation. What did they do to prepare? What are they mindful of and how do they start to prepare themselves?

 

00:23:38:09 – 00:23:50:25

Sylvain

In the case of a recession, and I’m sure John will have tons of war stories of what happened in 08 and nine and how he and his team got ready to kind of weather the storm. We’ll talk to you then, folks. Take care.

 

00:23:50:25 – 00:24:00:02

Mark

Thanks for watching and listening to our show. We’ve got more great episodes on digitalgrocer.com and we’d love to connect with you on social media.

 

00:24:00:14 – 00:24:12:24

Mark

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