Bart Waldeck:
Hi, everyone. Welcome to Location is Everything. Tango Store Lifecycle Management podcast. As always, I’m Bart Waldeck, your host.
Today we’re going to jump into an interesting sector of retail and that’s the grocery segment. Obviously, as an essential business grocery stores were truly on the front lines and they still are of the pandemic. We owe a debt of gratitude to all of those who’ve put themselves on the line so that all of us could continue to buy food and other types of essentials.
Arguably, no other segment in retail has been impacted as much by the crisis, as grocery. Whether it be from how people shop to the brands that they shop, and to how those brands provide their products and services to customers. I’m just fascinated by what’s going on in the sector.
I’m really excited to have Bruce Mooney, Vice President of Market Strategies at Loblaws, which is the largest retailer in Canada, join us on Location is Everything. Hi, Bruce. Great to talk to you again. Welcome to Location is Everything.
Bruce Mooney:
Hi, Bart. Thanks for asking me to participate in your podcast. Looking forward to it.
Bart:
I am really excited because you’ve been in the space for so long and you’ve got some deep insights here. How have things been going on your end lately?
Bruce:
Thanks for asking. I’ll try to keep my responses general to the grocery and supermarket community, so I’m not hopefully zeroing in on things that are too specific to Canada, but generally business has been quite well. It’s been challenging, as I’m sure anyone in the sector would acknowledge, and to hear we’re going through a third wave. Right now we’re in lockdowns in a couple of the provinces.
We are responding to reductions in customers, say to 25% of normal capacity. We’re working through that with our store and we’re continuing to play that role as restaurants remain closed of feeding the population essentially by our supermarket industry. We’re hoping as the summer progresses that we see our way out of this, of course, and return to some form of normalcy.
Compared to this time last year Bart, significant improvement. We were all scrambling to figure out what the new procedures and protocols would be on every front. I think we’ve got it under control operationally now.
Bart:
That’s great. Well, before we jump into the meat of it, maybe if you could spend a little bit time on Loblaws, a little bit about the portfolio and what your function is in real estate process there.
Bruce:
I’m responsible for our store network planning and coordination with my real estate peer, as well as tracking demographics and competition. Really, trying to understand what’s going on the ground and the supermarket space. We also do this into their drug store space as well here. Our store network planning, guides, our capital investment strategy.
And as you know, that’s a key part to any retailer’s growth plan about where to put stores, how large they should be. We operate multiple banners and formats. It’s a nice complex role that every single day it’s something different. And that’s one of the things that allows you to stay in the business for a long time and keep fresh because it’s always challenging and new.
Bart:
I’m sure the COVID curve ball took that to the next level. I mean, you mentioned that grocery sector has done well, you guys have done well. I was recently reading that in a McKinsey report from August of last year that consumers expected to increase their spending compared to usual on groceries, so up 14% here in the U.S., in that study.
It’s also a sector that has one of the highest scores for consumers expecting to shop online more post-COVID than it did prior. I think the study said 30% to 49% in the U.S. and then 50% plus in the UK.
What kind of changes did you see to your core business when COVID came about and how has that evolved?
Bruce:
Those numbers that you quoted from McKinsey are hold true north of the border too. It’s rate of 14%. It’s somewhere between 12% and 14% on total sales. For sure, that adoption of e-commerce and likely as it mentions here, half of households have tried it in some way, shape or form through the last year.
I’m going to focus a bit more on real estate to answer your question than store operations, because that’s the part of the business that I work in. Thanks for calling out at the start of the podcast of the big collar, to all of the colleagues in the supermarket sector and in every country across the world for keeping people fed.
If I just look at real estate, however, when you look at the stores, if you go into your local supermarket in Chicago or in any of the markets here and you can of course see the changes to the physical store itself. We had to close departments. We had ancillary retail uses such as dry cleaners or fitness centers that needed to be closed in the initial wave of the pandemic.
We worked with those businesses to make sure that it was done properly, including some abatement on rent, as well as how to reopen according to our store conditions. Our third-party tenants, for example, had to reopen based on our criteria in terms of the safety measures that needed to be installed. You can also see to another areas, the plexiglass one is well-known, so I’m not going to zero in on that, but the wayfinding in stores, the attempt to keep people apart, the lineup at our point of sale.
Bart:
How does the wayfinding work in this? I haven’t heard that concept in stores. I obviously know wayfinding we have in our software more in an office context than we do in a retail context.
Bruce:
Identify one-way aisles.
Bart:
Oh, I was thinking digital – the stickers on the ground, which way to go, traffic…gotcha.
Bruce:
Just to get all that signage ready in a lot of the stores and have them in stickers placed on the floor. We run 2,300 stores via supermarkets and drug stores. So that’s a lot of stickers and then overhead signs as well. And this all needed to be done quite responsively last spring, as you know, and then keep it up to date.
We also have, as many other retailers could attest to, different local health unit or state or provincial guidelines that are different. In certain jurisdictions, what’s possible in one may not be possible in another. Because we want to be in compliance, of course, with the health guidelines of every jurisdiction there are nuances in different areas. To make sure we adhere to those and make sure that our customers and our store colleagues remain as safe as possible.
Bart:
That’s been one of the highlights I’ve seen in a lot of the research I’ve read is, even from a consumer perspective, there’s the safety for them as a shopper, but there’s also the consumers desire to have the employees be as safe as possible as well. Obviously, you guys as well. Some of these measures, there’s the makeshift react to the situation, get the temporary solutions in.
Have you guys tried to take it to the next step of how do we integrate some of these measures longer term in a more standardized what you had to do to react initially?
Bruce:
Not so much yet. And I’ll focus in on one of the major changes that we did in our store, which is the lineups for the point of sale. Usually, if you have 12 point of sale open, you would have 12 lines. Now, the queue is a single line and is administered by a colleague who will point customers to whichever cash is open to prevent some jamming at the front end, if you will.
So that line often extends deep into the store itself as a single queue of carts. That’s one that when you see it as a customer and you walk in, you say, “Wow, that’s a really long line.” But then you realize there’s 14 point of sales that are open servicing that line. It usually only takes five minutes or so, which isn’t all that different than it would have been pre-pandemic.
I’ll be curious to see what our operation teams decide to do once that is removed. Here, I mean, we’re still looking at probably six more months of operating that way. That’s a question mark on that one.
Bart:
I’ve seen it become seems a little more sophisticated than what it initially was, but it still doesn’t feel like what it would ultimately turn into and how do you protect against the next potential pandemic and things like that. I do think there’ll be a fair amount of new protocols that will make it into long-term operating type of environments.
The other big trend is, as we talked about is move to online and the expansion of pickup and delivery. I think that was where elements of your business prior to the pandemic hitting. I assume they got stress tested, I should say, quite a bit when everything moved online, when stores mostly closed or had restricted hours that you were able to operate.
I know for myself, we use e-commerce a lot. I just have never done it prior to the pandemic when it came to groceries. I just would always go to the grocery store and you’d have a major shop during the week, or you might have other times throughout the week, you stop in and get smaller things, but never ordered online. Now, probably 50% plus of our grocery shopping is done online, even though I’m fully vaccinated now, I can go into the grocery store, but it’s just the convenience of it is great for a busy household that we have with young kids and stuff like that.
What has happened on that side of your business, as you know, curbside and delivery has picked up?
Bruce:
It’s been the thing for retail through the pandemic and it exploded right out of the gate. We saw a tripling of what was already a decent business for us. It became quite significant and highly correlated of course, to the lockdown, so at any given health jurisdiction. We’ve had to adjust to that operationally and physically.
To make more room in our stores, for example, to stage our e-commerce orders or curbside pickups, to hire more staff, to fill those orders and to consider how to grow that business again, because I think one of the biggest questions in the industry, and we’ll tackle that right now, if we could, is where does this all go? How do retailers who have focused the, let’s face it, the supermarket industry was one of the later ones to adopt the e-commerce disruption because of the nature of perishable goods. People do the touch and feel of their supermarket shop in general, especially on the outside of the store, if you will. The product areas, the service areas. So not as prone to disruption as other areas of retail.
But now that people have learned that they can do it, now that you’ve learned that you can do it, when you can, there are all kinds of different schools of thought on this, and I’m sure many of our listeners will have lots of opinions and that is, people will rebound back to, “I really just need to talk to somebody. I would just want to have that experience of understanding how I should cook that steak and on my barbecue,” and just have that dialogue.
They’ll definitely be return to that, to some degree, but then there’s just the convenience aspect that you’ve raised on, “I’ve now learned to do this. I didn’t expect to do it anytime soon.” The industry basically, I’ve heard everywhere shot ahead three to five years on the adoption rate in the space of a month, there’s some reports out there about that.
When we all returned to full opening, does it go back to one and a half times of what it was or two times of what it was? That’s the big question in front of retailers today in our space. We’re all working hard at it and through different techniques. I think that it’s certainly a key area of focus for all of us. I don’t know anybody that knows the answer to this one.
Bart:
You need an answer to understand the right level of investment, how much change we need to go through. It’s a tough question, but it needs to be answered, right?
Bruce:
It’s a push-pull thing, too. You can create it by making it more appealing to your customers, or you can hold back. We have retailers across the spectrum on that. Some are holding back, some are going full tilt.
Bart:
Some go full in. I know obviously, grocery is a lower margin business – volume-based – and the introduction of these new channels and the growth of these new channels, I think probably put further pressure on margins from an operating perspective.
I recently read when shoppers buy groceries at a store sales typically have about an operating margin of 2% to 4%. This is according to something I read from Bain & Company. When you look at some of these other channels that have opened up, the margins get further impacted. Margin moves to a -5%, if you pick from the store and have the customer retrieved through some type of click and collect, and it drops to a -15%, if you pick, and then ultimately the store needs to deliver to the customer’s home.
In a high pressure margin environment of grocery, how are you guys thinking through these new channels and how to crack the nut of profitability here?
Bruce:
That’s a question facing every single retailer. We are obviously trying to substitute something that our customer is doing for free today with either a store colleagues, D.C. colleagues, or robots, and all of those require the expense being shifted over to the retailer. Obviously, having your backend processes as clean and simple as possible is one step.
We all work on our back office efficiencies all the time. Be they, even accounts payable receivable, so that all of that flows through without human interaction, to basic retail principles still apply here. If you’re running a larger basket sizes from your customers, build the loyalty of the customer base.
So that even though the margins may be impacted, you still have that customer in your ecosystem whether they’re coming into your store physically, or click and collect, or delivery. That’s the area where all retailers still need to continually need to work on. It was an issue before you commerce. It’s just been expedited because e-commerce, as you mentioned, is a margin impact for retailers. The capital investment that’s required to stand up systems or the labor required to do the daily fulfillment types of approaches.
If you look around the retail landscape in the U.S., you can see who’s trying to do what, where, and you’re in a great market to see all of it, with respect to what Walmart’s doing, what Target’s doing, what Kroger’s doing. So you’re able to just understand, how do you as a customer, see what they’re doing, and is it right for you?
And so, think about that next time you go in, or you compare it, because I know we’ve had conversations you and I have. Your daily shopping routine about mixing your type of purchase on different kinds of retailers. You say, “I like that, done it at that one. I don’t like that.” If you start to shift your shop, because of that change, then that’s made a difference.
Bart:
It’s interesting because you hit it on the head and just in my own personal experience. It does tie into the brand loyalty side of things, too. It’s like, so unfortunately I don’t have a Loblaws to go shop at here in Chicago, but I’ve got the usual suspects. I have a Whole Foods, I have a Trader Joe’s, I have a local supermarket that I believe is owned by Kroger.
Like you said, I’ll get different things from different ones, but you know what surprised me, take Whole Foods as an example, we do a lot of shopping there and I’m ordering online through them. That’s actually the only one I order online through. Trader Joe’s I can’t, but with Whole Foods and they notice it’s a good e-commerce experience. They notify you when your groceries are in route and you can follow it on the map.
What surprised me is, there’s a store a mile and a half away from me, and I’m assuming it’s coming from that store, but when I watch on the map, it’s coming from downtown Chicago sometimes. I’m only five, six miles outside of the city. It’s interesting to think–I don’t know if it’s come from a store there or a distribution center or what, but somehow they’ve determined that to meet my needs as profitable as possible, they’re distributing it from the city instead of from my local town, which shocked me.
I thought about the idea of, how do they make that profitable? It’s complicated. Also, it goes back to the brand loyalty thing. I have read a bunch about loyalty changing during the pandemic so whether it’s safety or convenience or product availability, some of these lines that were harder from a loyalty perspective have blurred and people are willing to try other brands for whatever reason.
Have you seen that in your business? I know you have a loyalty program and it’s a big part of what you do has loyalty taken on a different dynamic?
Bruce:
It has a little. The loyalty dynamics changed to become locally loyal. If we can just park the e-commerce discussion for a moment, where are people going with their supermarket purchases? Because during the past year, it’s been the major outing for a lot of people.
Two things have happened. First of all, without those of us fortunate enough to work at home, we are lucky to be able to do that. But our shopping patterns have changed and we’re purchasing more around our place of residence than, I might’ve picked up some things on my commute to work and back. Now, I’ve shifted more locally.
The other thing that’s happened with respect to loyalty is, here, people have shifted back to the service-oriented supermarkets. One area that’s different in Canada compared to the U.S. is that the penetration of discount supermarkets is distinctly different here. The desire to go and get larger assortments in a full-service conventional supermarket has heightened. There isn’t as much price sensitivity in the space as well, because you’re not going out to a restaurant once, maybe twice a week, for some families who are lucky enough to do that. Now, they feel that they can, it’s one of the few decent experiences during COVID, that can go and get some unique food or prepared meal kits, and that sort of thing. That, which is another area we’ve seen a significant explosion in.
That’s been very interesting to watch about the trend to, “Well, we just want to have something really good because it’s the family occasion we get together and we’re not spending a lot of dollars, any dollars out in restaurants anymore.” Those have been the two loyalty trends that have shifted.
Bart:
That rings true for us, too. Well, buy a nicer cut of steak or we’ll do something like that. It feels like go out to dinner, but you’re cooking it at home and it’s got a special meal feel to it and you’re willing to spend more and I guess less price sensitivity makes, makes complete sense.
How do all these changes in the percentage of transactions occurring in store versus curbside versus delivery, has that changed for you, your thought of what a trade area of a store is? Does it include a delivery trade area, not just the in-store shop? Does it include a pickup trade area and are these different? Is there a different type of way to look at that when you’re thinking through location strategy?
Bruce:
We’ve definitely seen a difference in the trade area types with respect to the physical store, compared to the e-commerce store. The physical store is still very much is location, location, location. They’re principles that we all grew up with in retail real estate, the e-commerce does have a more distributed trade area.
When people are just willing to drive a little bit farther, say on the periphery of an existing physical store trade area, because they’re generally spending a little more on commerce. We definitely see that in our customer behavior. Those are the key changes or things we’re watching.
Bart:
How about as it relates to the consumer themselves? Again, not giving away state secrets, but one problem, I know we’ve seen with a lot of retailers, not necessarily in grocery as much, but this idea of each department has their own view of the customer–marketing as a view, real estate as a view, merchandising has a view.
There’s still silos and those walls are broken down. They have their own models, their own data sets, their own ways of looking at things. Now, we’re blending our activity as consumer so much through digital and in person that you need to start unifying that. That view at least that’s something that we’re proposing the sponsoring out there is an omni-channel customer view.
Do you guys think about the customer from an omni-channel lens?
Bruce:
Combined lens, to answer your question, is one customer we call it, and a lot of progressive retailers are doing this. They’ve recognized, which you just called out, which is there really is one customer and making multiple decisions, not just on location now, but as you mentioned, on the omni-channel purchase. We’ve definitely invested heavily in that area. That’s not so much to say a state secret.
I can let you know it’s in our annual reports and about having information scientists and getting deep into the data sets that our loyalty program does provide. We see that as a key decision-making tool. We want to know what our customers want and that’s the best way to do it. What they’re buying, but trying to understand more where they’re going and what they want. So, that’s our goal.
Bart:
It’s interesting, I hadn’t thought about what the comment you made before about, what I would call a generator. You have work home shopping, there’s different generators that are the origin of the shopping visit. Now, work forced to the home being 99% of it, so that does automatically lend to more of a local, you know, “It’s not near my office. It’s not on my commute. It’s not when I’m out in shopping, because I’m not shopping, it’s from my home.”
Bruce:
Exactly. So that spatial pattern has changed, for sure. As the economy starts to reopen here in 2021, we’ll definitely keep an eye on what patterns will change. And that’s going to be fascinating again in its own right.
Any number of projections about the number of people who’ve returned to central business districts, for example, to be 80% of what it was before four days out of five, one day at home four in the office to lower than that down. Profound changes in the office space sector.
Bart:
We’ve seen that on our corporate real estate side of our business and return to work planning and you see it new story a day where you have JP Morgan Chase, shedding office square footage in Manhattan, and you have others now come back where Google and Microsoft are saying, “You got to be in the office four days a week and you only can take 12 Fridays off of a year,” and stuff like that.
It’s interesting to see how that dynamic and culture and everything plays into what that is. But no doubt, will it have an impact on those commutes, and how often you in the office and ultimately shopping, right?
How about the store format side of things? One thing that, we’ve all heard retail apocalypse for years. Everything’s going online and brick and mortar is dead, never the case. It’s always been $9 out of $10 or what are still coming through brick and mortar and that’ll change in some of these accelerations of omni-channel.
It’s our contention that the store is almost more important than in an omni-channel world, potentially because it’s a place of purchase. You can purchase in store. It’s a place of potential inventory, whether that’s fulfilled in the store or whether that’s delivered. And then there’s ultimately the last mile where the customer takes possession of it. It could be in store for shopping or curbside for pickup.
It’s an important piece of the puzzle in all those formats, all those scenarios and the box needs to necessarily change, potentially, to accommodate these new shopping channels. I know Walmart in particular here in the States, putting on flexible inventory space, for lack of a better word, distribution center type square footage on the side of a Superstore, or Target investing in what they’re doing and whatnot.
Are you guys looking at changing, going to smaller formats or whatever it may be as it relates to the store and being more creative to fulfill this new consumer?
Bruce:
Definitely. It’s reinforced some trends that were in place well before COVID, and that is the shift to smaller retail footprints. I’ll talk about a couple of things and many of your listeners will likely know of these locations.
There’s two major trends going on. The first one that was underway was urbanization and densification. And that was driving store formats down, be at a city Target, which you have in Chicago. A great example of just opened up in Philadelphia of a giant who opened up in urban second level supermarket a couple of months ago. It’s a great example of starting to adapt to the developments that are occurring in the central business districts or in high density areas of cities.
These are retail for plates that are different than your suburban Greenfield site that, powered supermarket growth for a generation. The urbanization of North America, and as you know, I’m going to school for that right now. Great learning experience going back to school when you’re in your 50s. It’s a great experience. There’s that whole city concept of retailers and it can be a great experience if you live downtown and have a great supermarket. The giant one appears to me, I look forward to getting there and seeing it at some point.
The other one then is the disruptors in this space. You look at what Amazon’s doing with their supermarket, which is extensive in the U.S., where about a third of that store is dedicated to e-commerce fulfillment. Tes, you can still go into as a customer, but they’re going to set aside a significant amount of floor space to have this omni-channel presence. They have a few open in California now. It’s the Fresh concept, larger than the Go, which is an interesting concept in its own right.
Our response to both of those trends is, yes to modify the size and the offering of what’s inside our stores, and to be reflective of what the shopping patterns will be. As you mentioned at the start of your description, 90% or call it 85%, I’d say that’s where it sticks, that’s still a very large number of people inside the store.
If you told anybody from scratch 85%, they’re going to say, “Well, that’s where I need to focus to make sure the experience and the store itself is absolutely the right area to invest in.” It’s just a matter of identifying what categories, say would be better if there wasn’t as many facings or as many linears.
That’s always been an analytical discussion for retailers, through the last generation. The minimum number of linears to have to sell the maximum number of items. So that’ll just become accelerated. We’re always adopting our formats.
Bart:
I’m excited to see. I do like how you can better integrate the digital and the physical, Whole Foods here has done a good job with that, with Prime and all that. I go into the store, I’ve got my own barcode. It knows it’s me. I’ve got Alexa, which feeds my shopping list. It’s all woven in very smartly and I’m sure you guys are far down that path as well.
Just to wrap up here, we’ve talked a lot about all these changes going on, and quite frankly, I don’t remember in my 20 plus year career in retail technology and real estate and facilities, this much change going on, whether it’s rethinking the trade area, rethinking the box itself, rethinking location strategy. All the follow-on transaction work that needs to be done, leasing work, design, construction, facilities changes around maintenance and safety. It just seems overwhelming to me.
Does that ring true to you that you guys are feeling an immense amount of change today?
Bruce:
For sure. It’s called convergence and many stresses coming at you at once. I mean, energy is another one too. We’re very active in reducing our greenhouse gas footprint and being very responsible environmentally. That’s another factor that will come out of post-COVID. We know that we can do more as businesses and we are. We had identified that.
When you layer all of that in, when it seems to be intimidating or overwhelming, try to think about the customer. What our customer want? If you’re giving them a decent store experience at a decent location, with the options that they like, that’s a good start. That’s a good start.
Bart:
You’re doing well. I think technology to manage the store life cycle, given the amount of change and given the complexities is becoming, I think more and more important, at least that’s what we’re seeing from the needs of our customers.
Bruce:
The information systems that you run, as I mentioned earlier on in the back-office matter greatly. It’s definitely competitive advantage if you get those right.
Bart:
Absolutely. Well, I want to thank Bruce for joining us. This has been fascinating. You were one of the guests I was looking most forward to having on Location is Everything.
Hopefully in the future, as this continues to evolve, I’ll have an opportunity to bring you back and we can talk about what’s changed since now, because as you mentioned several times, no one really knows. And if they say they know they don’t, so there’s a lot of learning to happen and a lot of change that we’re all undergoing, but thanks so much for joining Location is Everything.
Bruce:
Thanks for having me, Bart. As always, I always appreciate our conversation.
