[00:00:05.050] Hey, David. Hey, Charles. How are you? End of the week.

[00:00:07.290] End of the week.

[00:00:08.300] And pretty much end of real summer. You know what I mean? Yes, with all the kids going back to school.

[00:00:15.590] Back to School. Back to School.

[00:00:16.870] So sad. Exactly. It’s awful. It’s awful when they go back to school. So we’re going to do a behind the headlines? Yes. This is very exciting. What are we talking about? I think The hot articles that have been handed to us.

[00:00:34.030] Yeah, is about, well, Walmart and Amazon.

[00:00:38.120] Clash of the Titans.

[00:00:39.130] In grocery.

[00:00:40.410] Walmart and Amazon in grocery. And the two articles we have here that, of course, will be in links, the very hot articles. A new online grocery market share analysis shows sales continue to shift away from supermarkets and towards Walmart as household Search For More Savings. And Article 2, probably the first one we talked, Walmart, Amazon in high tech food fight from Forbes. Yes. Very exciting.

[00:01:12.810] Very exciting. So we have those two giants that originally were not in grocery. Well, Walmart has been for much longer, but still.

[00:01:24.010] But originally, Walmart is not a grocery chain. It’s a mass merchant.

[00:01:28.930] Yeah, exactly. And so you’ve got these two giants that are now in grocery, grocery retail, but from a very different angle. So Walmart that came from the brick and mortar I’ll pronounce that right. And then Amazon from the online approach with, along the way, the acquisition of Whole Foods, but also have their Amazon Fresh division for a direct consumer delivery. So you have two directions coming. But what the article are stating is ultimately is that Walmart is winning, right? Yeah.

[00:02:12.890] Well, I don’t mean it’s not fair. When Amazon got into grocery, Walmart was already winning. It’s been the dominant grocery for a long time now. And I think I would say what I would observe would be that Amazon’s attempts at grocery have been not so successful, right? Buying Whole Foods to get myself a national footprint. I don’t know. I’m not an expert in retail. I just know when we look at it from the supply chain perspective, it’s very different from the Amazon playbook otherwise, where Amazon, and they’ve curved back appropriately over the last, well, post-pandemic, let’s say, but they have been in a mad dash to acquire as much distribution footprint in every urban market in North America and, of course, elsewhere in Germany and other places. But let’s just in North America, mad dash to add square footage so that they could have this critical mass of distribution that would allow them to at your doorstep the next day or even sooner in some cases. Then they go off and they buy Whole Foods, and Whole Foods has a supply chain. It’s never been famously a supply chain-oriented company. I mean, Whole Foods has put stores in neighborhoods where the demographics seem to match up with what they think is their target demographic, regardless of the supply chain, regardless of what the distribution network looks like.

[00:04:00.430] And you’re stuck with these with two choices. Either you have this incredibly extended national distribution footprint that requires you to travel many, many, many, many, many more miles to deliver to the store than a Walmart would, or that a Walmart would even contemplate as acceptable. Or you’ve got to have a very complicated portfolio of suppliers that serve different clusters or regions. Very different.

[00:04:33.650] And you were doing the remark to me that if Amazon’s play was to use those Whole Foods grocery store to bring customers in because they could pick up maybe one of their online order. Well, you pointed out that the customer profile of a consumer goods for Amazon versus a consumer for grocery are actually quite different.

[00:05:03.220] Well, this is just my hypothesis from my own life, really, that your typical habitual Whole Foods customer may use Amazon But the classic Amazon Prime user is not a Whole Foods customer. I think of Whole Foods as very suburban, got money to spend. It’s not It’s not a luxury brand. We do have luxury retailers in every major chain where the emphasis is on the quality of food. And I think Whole Foods is more about that health environment. There’s a different type of well-healed customer that goes to Whole Foods that doesn’t strike me as somebody who’s-Ordering on Amazon.

[00:05:54.990] Yeah, right.

[00:05:55.660] Wants the toothbrush delivered to them the next day with their prime membership. I could be totally wrong. I don’t think I am so far because Amazon in the physical retail has really not made any impact on the grocery industry.

[00:06:12.700] No, because Whole Food today is exactly what Whole Foods was pre-acquisition.

[00:06:17.410] If anything, not exciting as it used to be when it first came up. And then these articles also look at the… They look at three things. And so the second thing that I would bring up It would be, now let’s look at it online. So that’s where you would expect Walmart, who, as we just said before, they just have so much operating discipline. They don’t open stores that are too far away from DCs. They know when to They’ve had a distribution center to serve a cluster of stores. They march very carefully towards new markets and thoughtfully, and then they execute their supply chain quite excellently. It doesn’t mean they’re perfect. They’ve got warts like any other organization would, legacy items that they probably… I’ve heard from various people. They probably don’t have the greatest warehouse management system on Earth because it’s just such a daunting task.

[00:07:21.030] To even contemplate.

[00:07:22.950] That would take a crisis, I think, to make a move there. But point The thing is, we’re not surprised at their brick and mortar success. But then, out comes some market data about how the e-commerce grocery world is shaping up. And I’ll ask you just to test you. If you read the article recently, what percentage of online grocery sales does Walmart own?

[00:07:54.770] 37 and a half %.

[00:07:56.600] 37 and a half %. It’s insane. Yeah, it’s That’s huge. I actually think, I don’t actually think, I’m almost 99 % confident. They have a larger portion of online grocery than they have bricks and mortar grocery.

[00:08:15.180] Yeah, that could be.

[00:08:17.980] Well, look, Walmart is not 37 % of the US grocery market.

[00:08:20.540] No, you’re right. Exactly.

[00:08:21.890] Let’s say it’s 20 to 25 %. It’s almost twice the amount of online groceries are happening via Walmart than our sales, which tells you just how not great our traditional supermarket chains have been doing in the online market. It also says something really interesting about Amazon, because Amazon should have-The upper hand.

[00:08:50.850] Wiped them.

[00:08:51.680] Right. Should be completely dominating. And again, Amazon has probably really failed.

[00:09:00.960] Well, what it says is that it’s actually much harder to do grocery than to do online. Right.

[00:09:07.720] Well, I’ll tell you a story. Years ago, and this was pre-COVID, this was so many years ago, no one will remember. I remember going to an Amazon grocery facility just for a visit, just a fun visit. And if you think about… So the Amazon, they built their own WMS, warehouse Management System, technology to run their warehouses. They did it with the concept of how do you distribute a million titles of books. And in the book business, sure, you have some hits. You have your best sellers. Then you also have books that are always being sold. So The Shining from Stephen King, Orwell’s 1984, any Jane Austen novel. And the Bible. There are some. However, you have 999,000 titles.

[00:10:06.660] You’d only need to hold a few units.

[00:10:09.350] Lucky if you get one sale a year. Effectively, where you put them in your warehouse does not matter. It won’t change the heat density, the travel. It doesn’t change anything about the operation. And so Amazon had this random put away-Logic.Logic put into their WMS. So then they go off and they open in this online grocery fulfillment center. I went to visit, and you would see the impact of the random put away in grocery. So I’ll get to the consumer behavior point in a second. So a bag of carrots were sitting under a Mister. Something for coriander, parsley, whatever. Keep your leafy greens nice and fresh. Bag of carrots. In the freezer, you have vanilla ice cream on a shelf over 6 feet that you’re reaching for. But your whatever- Watermelon.

[00:11:11.810] Right.

[00:11:14.900] The watermelon ice cream is right there in the golden zone. And that’s just a function of what happens when you do random put away. I won’t get into the boring math behind that, but it’s a classic situation we always see. And You can’t take what is a very habit formed consumer pattern, like groceries, and apply a more random demand WMS that serves random demand to that. It was a bad application. And of course, ultimately, that’s going to end up with you’re not getting the best quality of produce. You’re not getting the best quality of anything because nothing’s really been treated with a love and We care that it should.

[00:12:01.210] Yeah. And a consumer that has so many options to order from will not tolerate this for a very long time.

[00:12:06.970] Another fascinating thing that we should talk about, we’ve seen this statistic before in online grocery. Half of Walmart’s orders are pickups.

[00:12:16.670] Yeah.

[00:12:17.520] Pickups. And I think we saw that with lovlas. We looked at lovlas and they had the same statistic. And this is mind-blowing to me. I think we’ve talked about this before. I don’t understand. I don’t understand why you would you go and pick it up? If you got to go, why don’t you just walk in and take the extra 10 minutes to buy the groceries? And I heard a really good counter to that. Let’s say it’s, well, school season’s back, right? We’re going to go into fall sports. And I know your kids are largely couch potatoes, but I have super athlete kids. And let’s say, in all seriousness, let’s say, so it’s Thursday And we go to a soccer game. Let’s call it a soccer game. That’s a universe. Go to the soccer game and it’s five o’clock at night, and you really want to get your groceries done. And while you’re watching because you Our kid is definitely on the bench most of the game, right? So I don’t even have to watch. And my kid is never on the bench. So I get bored. Like another goal, another goal. Great. You got time.

[00:13:28.330] You got time, you place your order for a pickup, and to the grocery store that’s between you and your home. And then you, boom, pick it up and you get home. I thought about that and I realized, okay, it makes sense, I guess. So anyway, 50 % of Walmart’s volume is pick up.

[00:13:46.680] Yeah, exactly.

[00:13:47.640] Which is an impossible thing to do without having places to go pick it up in, which Walmart can do and Whole Foods can’t. So one of the questions I wonder is, well, The role of having bricks and mortar locations, it’s just very, very powerful in enabling your dominance.

[00:14:07.800] Yeah. And getting there, developing that omnichannel strategy was not simple.

[00:14:15.670] Another thing that I think is really interesting about the Walmart online supply chain, they are very committed, and they say their sales have increased the more first-party fulfillment they do, meaning running They’re running their own centralized facilities and running their own delivery. And I wonder if the reason the supermarkets haven’t been as strong, I don’t know this, I’m just wondering, is there a penalty or a discount or a depression in your natural demand that comes from being more Instacart oriented? Because that is what maybe too many retailers, classic supermarket chains have done is they Outsource. They’ve just given their business, their online business, up to Instacart. And that from a capital, from a capital investment perspective, probably the right call. It’s a very legitimate option.

[00:15:12.590] And was also probably a legitimate option in a time where, especially with COVID, where the spike in demand for online, you’re like, this is the fastest way I’ll be able to offer my customers some online options.

[00:15:29.290] Yeah. And I think And I think, obviously, behind the Wizard of Oz’s curtain, you’d say Instacart is a non-union option, and you could see people worried about adding staff that will become unionized and then And then the costs associated with that, even though that’s obviously not meant with any disrespect to the work and the important roles that unions play in protecting the in the interests of their members. But it is a consideration when people are making what could be significant investments on what can be marginally profitable sales channels. I don’t think anyone’s going into online define fulfillment to make more money. I think they’re doing it to protect their market and to keep their customers happy. And that’s another idea that they talk about is this adaptive retail, which is we are going to be everywhere where you want us to be, customer. And I think it’s almost a defensive position more than anything.

[00:16:38.760] Yeah. So aside from… Not aside, but in relation with another podcast we did a while ago, the Albertson and Croker, still non-resolved potential merger.

[00:16:53.670] It won’t be resolved for many minutes.

[00:16:55.560] Exactly. You wonder, well, because surely they will use Use this as an argument of saying, Look, we cannot let these two or let Walmart alone just take on and take on more and more of, well, in this case, the online but grocery as a whole. So we need to not step up, but create another size of organizations that can compete with this.

[00:17:19.130] I’m sure that’s their argument. I think if they bring up Amazon, I think that’s a really weak argument. It doesn’t look like Amazon is doing much of anything. The other thing I think is really interesting interesting is within the retail footprint, the actual physical stores, the amount of investment that they’re making in technology and smart cards and all that stuff, we’ll see if that really helps or hinders, if it creates more friction for a customer. And then online, of course, they’re both touting a whole bunch of AI things. I do think that shopping assistance will be one day useful, which is both of them have rolled out shopping assistance who basically show up and give you suggestions of what you go, Oh, I see you’re buying marshmallows. Would you like Graham crackers? And it’s to me, I’m reminded of the disastrous Mr. Paper Club of the old Microsoft, which was the Office 95. And the paper clip shows up, says, It looks like you’re writing a letter. Let me help you. Oh, my God. I don’t need your help. But in that And there was one thing that I thought was pretty cool, and I think people will genuinely like this.

[00:18:36.170] Ultimately, when we get to a point when the shopping assistance can handle complex tasks, like in a couple of weeks, I’ll go away for the weekend and I’ll say, Hey, I’m going away for the weekend, shop what I need for two breakfast, two dinners, two lunches, and I want zero waste Just at the end of it. And you imagine you throw that to it and then it creates just the right amount. That would be pretty cool. If it could do that, it could be very helpful.

[00:19:10.920] Along with preferences and what you should include and not.

[00:19:15.260] Years So when we were working with Chef, the founder of Chef’s idea was, I’d love to have a Chef button where any recipe pops up on the internet and I can create the shopping list for it and deliver it to you. I Ideally, portion. When you think about that, that would be great. As we learned through that company, it’s very expensive to do that.

[00:19:41.940] But then you’ll be forced up watching every goal that your kids make.

[00:19:45.150] I’ll be watching forever then. Anyway, so that’s it. All right. Walmart versus Amazon. The early rounds are heavily, both online and offline.

[00:19:59.180] To Walmart. To right. Take care. Thank you.