In this episode of Coherent Thoughts, James Glover speaks with dunnhumby’s Kyle Fugere about the changing grocery retail landscape.
Kyle Fugere is the Global Head of Ventures at dunnhumby as well as the Head of dunnhumby Labs where he focuses on bringing innovative new technologies to retail.
This week, James and Kyle talk about e-commerce in the grocery sphere as well as the impact of COVID on how consumers shop for groceries and the impact that personalized marketing has had over the past year.
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James Glover 0:03
Hi, I'm James Glover and I'd like to welcome you to Coherent Thoughts, a podcast that explores the rapidly-changing retail landscape. Coherent Thoughts provides insight from industry executives and thought leaders on how to navigate the shift to digital. Everything from email marketing and social media to personalization and more. Today's guests on the Coherent Thoughts podcast is Kyle Fugere. Kyle's the head of Global Head of ventures at dunnhumby, as well as the head of dunnhumby labs where he focuses on bringing innovative new technologies to retail. Kyle, welcome to the podcast.
Kyle Fugere 0:36
Hey, James, happy to be here.
James Glover 0:39
Good to talk to you. How are you surviving the apocalypse?
Kyle Fugere 0:41
I am surviving, you know, luckily, you know, remote work. I would say I was doing it before it was so popular. So, definitely managing but you know, it's a change for all of us for sure.
James Glover 0:56
What ever happened to that WeWork IPO? Did they actually go public? Or did they stop it?
Kyle Fugere 1:04
That is a good question. No, my WeWork card - I think it must still work. I just can't find an opening anymore.
James Glover 1:12
Are they still charging you?
Kyle Fugere 1:14
Luckily, it's a corporate account. I don't know. I stopped asking. Yeah. But it's been probably eight months since I set foot in one of those,
James Glover 1:24
Since anyone stepped foot in one of those, probably. All right. Over to our world where we actually live. So Kyle, retail has been among the industries that's been hardest hit by COVID. And we've seen a lot of retail business shift from physical stores to to the web. I know, you spend a lot of time in grocery, you know, how is it different if you're a grocery retailer compared to a regular retailer? And the sort of what is the climate like for grocery retailers in this kind of COVID-apocalypse world?
Kyle Fugere 2:03
Yeah, it's a good question. You know, I've been watching this space for a long time, or the grocery commerce space for a long time. And we've even made some investments in that space. Always predicting its growth. I would say none of us expected, you know, a global pandemic to be the catalyst for that growth. But it certainly has happened. You know, there's still some some catching up to do for sure, but it's been pretty remarkable to watch how quickly consumers have switched to this new way of shopping.
James Glover 2:43
Yeah, and we've been working with Bloomingdale's for, you know, a couple of years. And I like to say that, you know, for 20 years on their side, they've been trying to become more of an e-commerce company. And then overnight, they became like "bloomingdales.com", and they shut all their stores. It's crazy.
Kyle Fugere 3:02
And for grocery, you know, there's always been - grocery's always different, right? You're dealing with fresh foods, you have kind of a cold supply chain going on. Everything needs to be same-day. You know, it's not the same as shipping apparel from a discreet warehouse somewhere. So there's always been unique challenges specific to grocery that I think has probably caused some hesitancy to jump in with both feet. But I think what we've seen is that it can work. And it does occur correctly is actually a huge opportunity. Go ahead...
James Glover 3:44
I was gonna say we've seen, like on that shipping front we've seen a lot of these retailers when they shut the store down, move to shipping from the store. Has that always been part of how grocery does it? Or how do they handle that? Like do they ship from warehouses as well as stores? Or what do they do?
Kyle Fugere 4:03
Yeah, I would say grocery's almost starting to see the opposite effect, right? Where in the early days you'd ship from store. And so you'll always see the pickers kind of be meandering the aisles. But as it becomes more popular, actually the the shopper experience of having to navigate people who are shopping for e-commerce orders is not that great. And as e-commerce continues to grow, the need for separate picking warehouses or an e-commerce warehouse is starting to grow. So you're seeing companies like Takeoff Technologies or Ocado becoming much more popular to help fulfill that need, first just trying to pick from the stores themselves.
James Glover 4:50
Hmm. And besides the supply chain challenge and the shipping challenges, what are the other challenges for grocery to move to in more of a e-commerce world,
Kyle Fugere 5:04
You know, I think some of it just might be legacy - inertia. You know, how do you start it? You know, I think there's a bit of an unknown there. But really it's dealing or being comfortable with change. There is the unknown of "Am I cannibalizing my in store shopper? How do I make it profitable?" is a big one. You know, unlike other sectors, grocery has very small margins. And any increase in delivery costs, eats into that margin really quick. And so making e-commerce profitable has been probably one of the biggest challenges that groceries have faced leading up to this.
James Glover 5:58
And did they account for, like, if they could ship from the warehouse? Is that part of the economics of making it more profitable? Because they don't have all the overhead of the store? Or is that not at-scale enough to factor into it?
Kyle Fugere 6:13
No, it definitely is. So we think of the store: it's built for the consumer, right? Not necessarily for speed. And that's why you have like, center store and in different sections of the store to really, you know, it's built for the customer experience and making sure they see all different areas of the store. But it's not picked for speed of packing. And so a lot of these dark stores that we're seeing emerge, you know, are built for speed and that sense. So maybe that's grouping certain items together that we know people buy, or is having some automation as part of that. It really helped with the economics. But what we have seen over the last five years has been tremendous investment, and kind of the last mile logistics. And I think that is starting to pay off in terms of reduced operating costs.
James Glover 7:11
One of the things I think about is when the Gap, closed their stores, and you know, a lot of what their customers are doing is looking at new stuff, or it's very seasonal stuff, turns over a lot. And so they used to rely on the store for discovery, for a big part of how you would learn about the new products that gap is selling, you know, does that dynamic exist? And has it started to emerge for people moving to shopping online? Like how does a grocery retailer educate the customer? Or get them to see the entire catalog? You know, they can't put the milk at the back of the store online or something? You know what I mean? And make me walk through the whole store. How do they accomplish that?
Kyle Fugere 8:04
Yeah, it's interesting, we're starting to see, I mean, grocery is very competitive to get on shelf right? In-store. There's a lot of back and forth that happens between the merchants and the suppliers and the retailer to ensure shelf visibility. But e-commerce, you know, all of a sudden that changes or the dynamic changes there. And really not limited by a shelf anymore. So we're seeing more grocers extend their offering online, for actually a greater range of items. And maybe these are items aren't in-store but are available through other means. It may be their organic items or specialized items, that they work with a partner to help fulfill those items.
James Glover 8:59
And how do they get the customer to find out about them?
Kyle Fugere 9:05
I think that part is still to be determined. There is a lot more investment going into the e-commerce experience within grocery. You know, how do you make items discoverable? How do you make items relevant to the particular shopper? I think that is the biggest part, right? Just showing somebody a few thousand items is not really helpful. What you want to do is show them the items that are most relevant to them. So personalization is probably taking a bigger role here to make sure that experience is personalized to them. And with that, you know, I think we're seeing also a growth of what we call retail media, you know, starting to treat these sites more like, you know, for CPG the retailer or the grocery retailers website is their version of Google, right? How do you make your your item discoverable to the right person searching for it. And so we're starting to see that start to emerge quite a bit.
James Glover 10:08
And, you know, if you think about how COVID has affected people's spending, is it like an, you know, a lot of what grocery sells is kind of an essential service? Right? We've heard a lot about that, you know, is it like they're selling more of a narrower set of products? Or how is that kind of, you know, is it only toilet paper they sell, and they just sell vast quantities of it? Like, how has that affected the sort of carts in the mix? And, you know, has that changed, as well, as they've, you know, entered into this new world?
Kyle Fugere 10:49
Yeah. I mean, I think we've seen it change greatly, just over the last eight months. You know, certainly, household essentials was the first big rush. And we certainly experienced that when we went to the store and still see that aisle is empty. But I think over time it has changed a bit with consumers probably becoming more comfortable with this new reality. But you know, overall, I think the least sexy retail vertical of grocery turns out as actually the most resilient. Right? We sometimes forget how reliant we are on our local grocery store. And if anything is submerged, it's that realization,
James Glover 11:38
So tell the truth: Did you devote any additional square footage in your house to inventory?
Kyle Fugere 11:46
Oh, for sure. Yeah, I think my wife at one point came home with probably a lifetime supply of certain household essentials.
James Glover 12:00
And you're working through it?
Kyle Fugere 12:01
Yeah, we're working through it.
James Glover 12:03
Drawing down the inventory?
Kyle Fugere 12:04
Yeah, we're drawing down the inventory.
James Glover 12:07
We have we have a closet in our house, that's called "inventory." "Can you put this into inventory?" That's how we say it.
Kyle Fugere 12:16
But not only that, like - I speak for myself here - But eating out for lunch, every day was the norm. Go into the WeWork and I'd eat out for lunch. All of a sudden, my fridge is struggling to hold all the groceries we need for the week, because we're eating every single meal at the house. Whereas before, really was one, one and a half meals at the house. Or you could argue that rarely I'd eat breakfast in the house. And so that's a huge shift.
James Glover 12:56
Has that changed the mix for the grocer as well?
Kyle Fugere 13:00
Yeah, for sure. Absolutely. I mean, I, I'd say, you know, as everyone goes remote, you know, it no longer really makes sense to be going out to lunch every single day. Whereas before, it was just, you know, it's a pain to pack your lunch. And, you know, it was easier just to step out of the office, get some fresh air, walk to the deli, get a sandwich and walk back. You know, that dynamic has completely changed. And the question is, does it go back? And how much does it go back?
James Glover 13:39
If you think about the sort of dynamics of how the world is changing, I've got to imagine that there's, you know, sort of a bunch of different technologies, which are trying to help accelerate these shifts. And, you know, I know you wrote an article for VentureBeat on this, maybe help the listeners, what's what's going to change in the next five years in the world of grocery?
Kyle Fugere 14:07
Yeah, no, it's a complex question. I mean, the real basis of the article was that, you know, we've built up these habits over the years, and all of a sudden, these habits were broken. And now we're starting to form new habits, right? And that new habit might be purchasing your groceries online that you never would have thought of having to do before. Or your old habit was shopping everyday at the grocery store. Your new habit is shopping once a week. And you know, the longer this goes on, and the more entrenched a lot of these habits will will become. I know personally, I have a desire to go out to restaurants more but only because I've been deprived of it. You know, I still don't think it'll be at the same cadence as it was before. So I think within grocery, there's definitely a change just in consumer behavior. But overall for retail, e-commerce has exploded, I think in Q2 it was up over 40%. You know, I think we're all discovering that we were more ready to take this step than we thought we were. And that retailers were more ready to fulfill it. Right? There was some scrambling for sure. But the pieces were in place, all the investments and the last mile, logistics and things like that, are there. Amazon and others had really kind of pushed the envelope and forced others to keep up, and it's probably a good thing that happened.
James Glover 15:45
Yeah. Yeah. Do you think that if you think of Amazon, obviously, you know, the shift to e-commerce being up 40% is good for them. But do you think that in the long run, all of these retailers being forced, and the grocers being forced to shift their business online will actually in the long run, help them with their competitive position? Vis-a-vis Amazon? Or does Amazon just have an Amazon just have an absolute advantage? And you know, they're still gonna bleed out over time?
Kyle Fugere 16:19
Yeah, I mean, for grocery, I can't speak to other verticals on this. But for grocery, I think there's always going to be the need to run to the grocery store and get your items, right? You know, you forgot something for dinner; you just want to go and in person view a few things and pick out your groceries, I think that's always going to be there. It's never going to go exclusively online. But the question is, if you don't can you survive losing 15% of your revenue to somebody else who does have e-commerce? Because 15% decline in revenue might be enough to take you down. And so I think that's the bigger question. Not that you will fully be replaced, but, you know, how much of a hit can you take without being compromised?
James Glover 17:20
Yeah, I want to talk a little bit about the discounting environment and how that makes, you know, do retailers become more compromised or vulnerable? As they shift to online? I mean, it's a big kind of coupon, special end cap, you know, world. How does discounting work as they move online? Does it take pressure off? Or how do they navigate that world?
Kyle Fugere 17:55
I think there's a greater opportunity to personalize, right? And you guys know this better than anyone. If you can treat the consumer as an individual, you're better served. And if you have, it's not, you know, which promotions do we send out? It's which promotions are the right promotions for that individual. And that's something you couldn't always do in store. You know, you have the yellow tag that says, it's on sale if you use your loyalty card. But it's really up to the consumers' discretion. You know, oftentimes the items are that are on sale, are of no relevance to me. And so I think digital opens up a new opportunity to be more personalized than grocery has historically been in the past.
James Glover 18:54
And do you know whether or not the the prevalence of discounting is - the sort of overall prevalence - is higher in the e-commerce world versus the in-store world? Or are they about the same? Or we don't know yet, it's too early?
Kyle Fugere 19:11
I don't know that answer. What I do know is that the e-commerce real estate is this whole new opportunity that I don't think has been fully realized yet. For grocery retailers and their suppliers, right, really, it's a it's a conduit to the brands themselves, right, the Kelloggs and the Pepsis and the Cokes, and I think there'll be a greater opportunity for them to have complex promotions, more complex discounts, than maybe they were able to do in the past, but I think it's still a little bit early to see what the long-term impact of that will be.
James Glover 20:02
I wonder about - I've thought about - how, because you can see inside my cart as I travel through the store online, you know, so I know what you've already put into the cart in a way that, so not only can I personalize on the basis of what I know about you, we sort of think of that as tastes, you know? But I might be able to also personalize based on your mood, you know, if I see some of the things in your cart, it may be that there are other things that will be more appealing to you on that basis. Now, you'd have to be careful, they may be things you would buy anyway. Because you know, you bought, pasta, you're probably going to buy sauce, I don't need to discount it. But there may be other things, you know, you bought, I don't know, whatever Bloody Mary mix is, and, you know, I could sell you some ice cream or whatever to help with your hangover or something. I don't know what the combinations are. But, you know, I got to imagine that there's a personalization opportunity associated with your mood as well as your tastes, you know?
Kyle Fugere 21:14
Or even what inspiration right, you thought you bought these items. Did you know if you add this one other item, you can make this great meal? Yeah, you know, I think those things start to get unlocked within digital.
James Glover 21:31
Yeah, I like that, that there are websites where you can go and say, I have this in my cupboard. You know, what should I make tonight? You know, is there equivalent? Oh, it looks like you're making this, you know, what goes great with that is, you know, a garlic bread or whatever, you know what I mean?
Kyle Fugere 21:51
Yeah, and we're already starting to see that. I mean, that exists. You know, it's not yet as prevalent as it could be. But it is bound to be something we all grow to expect, as part of that shopping experience.
James Glover 22:07
And it could be seamless. And yeah, it just opens a world of possibilities that these guys aren't thinking about.
Kyle Fugere 22:15
Yeah. And I'd add that the bigger one is, at what point do all transactions become e-commerce transactions, even when you're in-store. So if if frictionless takes off, in that I no longer need to go to the checkout aisle to leave the store that I'm just buying them as I pick them. If that takes off, you know, then you start to introduce all these digital experiences, regardless of where the shopper is.
James Glover 22:43
I guess I'd sort of forgotten about the sort of scan and go phenomenon that my wife used to do it a lot when our kids were young, and they thought it was like a video game or something like that. But what's the market share is that is that how much is how much penetration does that have these days?
Kyle Fugere 22:59
It hasn't penetrated beyond the convenience sector, yet. But you know, companies like Standard Cognition, TrigoVision, and others have received 100+ million in investment. And so the money is there. And that tells me the amount of companies that are now raising capital with this goal in mind of making that shopping experience frictionless -it's going to happen. And you know, self-checkout is really not customer-friendly. No one wants to have to do self-checkout, it's much easier to have someone else do it. But that's also not the best, economically. So if you can find a way to make that shopping experience completely frictionless, whether that's scan-and-go, or, you know, some computer vision is automatically detecting the items you pick. I know the new Amazon grocery stores have the smart shopping carts. And so it's recognizing the item as you put it in your cart, and you just walk out the store. And that's it. And you think of what that does to the potential layout of the store all of a sudden completely changes.
James Glover 24:21
Well, in the opportunity to personalize to you as you're shopping as opposed to statically for all customers.
Kyle Fugere 24:30
James Glover 24:32
And if you think about like, we're super interested in serving the customer better, you know, with what I know about you, you know, over time. Of course, grocery has had very high frequencies, you know, like you come to the store 50 times a year or whatever. So there's a treasure trove of data. Is that changing at all in the world of e-commerce, you know, does the "abandoned carts" or email opens and clicks, do they appreciably add to the perspective I have of the customer? Or is it just sort of is it basically the same from a data high ground?
Kyle Fugere 25:13
No, I think we're starting to see that evolution. You're right, historically, because it's been such a high-frequency transaction. You know, in some ways, personalization meant just making sure you're buying the same items over and over again, right. Because of digital, we're starting to see new opportunities to inspire, to recommend items, maybe they haven't purchased in the past, to recognize faster if they are suddenly vegan or on a particular diet, right? How do we how do we capture that new information to to ensure the experience is personalized? Do we need, you know, months-worth of transaction data to make those adjustments in our algorithms that are recommending which products to buy? No, I think that's the big shift is how quickly you change your recommendations based on consumer behavior. And also, how do you recommend items in the digital setting? You know, no longer are you grabbing you know, a Snickers bar as you wait in line? Because you don't need to. And so how do you ensure the same type of basket? Or how do you compete in the same way you would if you were buying shelf space in-store?
James Glover 26:31
And then your final prediction: COVID vaccine? Within the next year? What's your...
Kyle Fugere 26:37
I hope so! You know, my mental health is banking on it. Yeah. Yeah, all the signs are promising. You know, I think it'd be interesting to see even when that does happen, if there's a snap back to the old normal or if we kind of say "You know what? This kind of works. You know, some of these habits aren't so bad! Yeah, I'd like to go on vacation more, but working from my home a few days a week is is actually quite nice!"
James Glover 27:07
Will you be on the first train to take the vaccine? Or are you going to be one of the like, laggers?
Kyle Fugere 27:14
I'll be on the third.
James Glover 27:17
The third train - not the leading edge! But, let's call it an early adopter.
Kyle Fugere 27:22
No, I don't want to be an early adopter.
James Glover 27:26
Definitely not an innovator. Very good. Kyle, thank you very much for joining us today. Thanks for listening to Coherent Thoughts. If you enjoyed the conversation, subscribe via iTunes or your favorite podcast app. If you liked the conversation, please leave us a comment or leave a rating. To learn more about today's guests, check out the show notes for today's episode at coherentpath.com/podcast