[00:00:05.080] Hi, Nicola. Hi, Charles. It’s the end of the week.

[00:00:07.460] It is the end of the week.

[00:00:08.490] I mean, not quite, but it’s the start of my vacation, and that’s why we’re doing this now. Exactly. And with the office all gone, we’ve invited the great Nicola Munche.

[00:00:20.680] The behind-the-scenes person.

[00:00:22.510] Behind-the-scenes, the Wizard of Oz, to help us do this episode. So this is your inaugural podcast. Welcome. Thank you. And it is behind the headlines.

[00:00:34.030] Exactly.

[00:00:34.590] Inspired by this… Oh, it’s an NBC article. No wonder it was so rapid. How AI and automation will reshape grocery stores and Fast Food Chains by Dilan Thornton.

[00:00:50.150] I mean, we really could have pulled almost any article. I feel like AI, automation, and food services everywhere.

[00:00:55.730] Is in every single article. Exactly. But you know what? It is a good launching pad to talk about… Well, what are we going to talk about today?

[00:01:03.880] We’ll talk about AI and automation in food service. Just food service. Yeah, but I think it’d be good to take a step back to understand how the food service supply chain works, the different components in its own in some categories, and then see where there’s best use cases for AI and automation.

[00:01:19.740] Everyone is so hungry. That’s why NBC, a very broad line news agency Cee would be writing an article like this because everybody’s so hungry for AI and automation talk, assuming that the universe will be transformed in three months because of these twin technologies, which is far and far away from being reality.

[00:01:48.300] Well, there’s a bit of click bait to it as well. It’s something really- There is. Glamorous and fun to talk about all these innovative technologies.

[00:01:55.910] I mean, let’s not cast stones when we live in a glass house, That’s true. That’s the whole reason we’re doing this is it’s click bait for us, too.

[00:02:02.530] That’s true.

[00:02:03.440] Okay, but yeah, let’s focus on food service. So you go. You are going to be leading this conversation.

[00:02:10.580] Okay. Go. Well, let’s start with the fundamentals. Walk us through the food service supply chain, the key components from A to Z and the key players.

[00:02:20.760] Right. Well, so the reason why this is something that you want to set the table with this part of the conversation is this article, again, says how AI and automation will reshape grocery shelves and fast food chains. And while those are both places where food is purchased, they are entirely different supply chains that don’t look at all alike, except for the fact that there’s food involved, right? Exactly. The food service industry, generally, you think of as places where the consumer consumes the food, right? You buy the food where you’re consuming it, whereas the grocery industry is where you buy the food to consume it at home or in a different location. So restaurants, cafeterias in schools, hospitals or prisons are the backbone of the food service industry. That’s where it all begins. And then within the restaurant world, you have different categories of restaurants. Politely, we have the quick service restaurant. This is McDonald’s, Subway, Chipotle, Chick-fil-A, wonderful restaurants that serve a purpose in all of our lives from time to time, also known as fast food restaurants. Then you move to chain restaurants that are not quick serve. So Applebees, all garden, places that mimic what you expect from the mom and pop independent restaurants, which we generally in the industry just call street business.

[00:04:12.840] And the first distinction, you have to… Well, let’s make a few distinctions. So if I go all the way from quick service to street business, and street business can be a hot dog joint all the way to what we call the white tablecloth restaurant, where the price tabs are high.

[00:04:35.170] The Stellina’s.

[00:04:36.300] Like Stellina’s, where I ate today for lunch. Well, there you go. And that’s why I need a nap right now, because it’s delicious, but a little heavy for lunch.

[00:04:46.800] Yeah, a little carb-heavy.

[00:04:47.830] But if I think about the quick service restaurant, these are very high volume stores. We call them stores in the industry for some reason. They are very high volume. They have a very low SKU count. Not just the menu is limited, but the range of ingredients that go into the menu is very limited. I mean, if you think of McDonald’s, they have 12 burgers Well, the burger is common to all of them. And mustard is across 10 of them. And pickles are across six of them. And the buns are the same across eight of them. And all of these burgers come French fries. Well, the French fries is that one skew of French fries and the packaging to hold the little containers to hold them. And then the soft drinks, the same thing. You might only have 300, 400 skews in a quick service restaurant.

[00:05:47.320] And that distinction you’re making, it’s important and unique to the food service supply chain. When we’re looking at product variety and the number of skews involved, how does that impact the complexity of the food service supply chain and the various components?

[00:06:01.490] That is a terrific question, because the entire supply chain for a quick service restaurant, which in NBC, they call fast food chains, it’s very different. Well, let me actually take the two extremes. Let’s talk about the two extreme cases. So now if I think about the street business, the Stellina or whoever your favorite around the corner bistro or restaurant is in whatever town you’re listening to this in, they actually are going to have more SKUs than McDonald’s. They’re going to have a more elaborate menu, and the menu will have more unique ingredients going into it. So if I have a 300 to 400 SKU McDonald’s, just one restaurant, one street business restaurant might have 800. And now, if you think of a supply chain that caters to both of those, the one restaurant that is at 800 plus the other restaurant that’s just across the street from it has 800. And the Venn diagram of those two is going to create 1,200 unique SKUs, right? And McDonald’s, with its whatever, I’m going to make this up, 30,000 restaurants across North America still has 300 SKUs. And each restaurant is doing much more volume in terms of cubic feet, not necessarily dollars, in terms of cubic feet of product going through the store.

[00:07:34.110] That is a radically different supply chain. And if I look at the quick service national chain businesses like McDonald’s, like Chipotle, like Burger King, like Wendy’s, like all of these folks, Chick-fil-A, near and dear to my heart, Popeye’s even dearer. You have a central organization that manages the supply chain, plans out merchandising, new products, will the McRib come back or not thing, and is working all the way at the producer level to control quality, to control the economics of their supply chain. So producer level. I’m talking about the French fries come from one French fry producer in McDonald’s case, who is then managing the fields and the and the farming of the potatoes. But that is going to run through distributors and from the distributors into the stores. These distributors, if you think about the distributors, they will have a freezer, a cooler, and a dry department in each in their warehouses, but with a very small SKU sets, very small number of skews, and a huge volume for each of those skews. Mcdonald’s French French fries in a warehouse, it’s mind boggling how much has to get shipped out in a day. What that means when you think about automation is your opportunities to automate are at the fast end of the products.

[00:09:19.760] So French fries, you could ask yourself, why would you ever have humans touch a case of French fries in a warehouse that’s serving McDonald’s? That entire operation can be automated with fairly mature technology. Okay. Nothing ground-breaking. When I go to the street business with equally mature technology, where automation has already been pretty broadly introduced is for the slow movers. So if you think back to, I had that Venn diagram of the two street businesses, two local restaurants where each of 800 SKUs, it makes up 1,200 in total. I add a third one, I add a third restaurant, 1,200 becomes 1,400. I add a fourth one, 1,400 becomes 1,500. I have this enormously long tail of slow moving SKUs that generate no volume on a daily basis, but are mission critical to serving that business, those types of businesses. So I already have a fairly mature solutions in terms of goods to person picking that can handle what normally or traditionally has been very labor-intensive part of the picking. So you can always in a food service warehouse, and this is actually true of every warehouse on Earth, this is a little fact of human consumption.

[00:10:54.410] In every warehouse on Earth, the slowest 50 % of the items generates two 10 % of the movement. And because of that, they’re not an important part of the business from a volume perspective. They are from a service perspective, essential. And so how do you not How do you overinvest in automation for those, but how do you appropriately invest in automation for those slow movers? That’s already a solved problem. It doesn’t mean that everyone can justify those investments. I’m just saying the solutions are available. New ones are emerging, which are interesting.

[00:11:34.780] Can we walk through some of these solutions? I hear all the time at Lid we’re talking about crawl or walk, crawl, run, and the different types of automation solutions and everything from Ocado systems to if we go back to a fast food self-checkout kiosk, which on the other end of the supply chain. But when we’re looking at the types of investments that businesses can be making for these slow moving items, what does that look like? What are these?

[00:11:59.100] Specifically for the slow moving items? Sure.

[00:12:01.160] And some of those fast moving.

[00:12:02.770] Look, in a warehouse, if I’m distributing slow moving items in a warehouse, there’s a couple of things I would want people to think about. Let’s talk about at the supply chain level. And this applies to the quick service or high volume facilities as well. There is an argument that says, especially as restaurants struggle, or not struggle, but try and find the right balance between the back where ingredients are stored for meal prep and the front store, which is where the revenue gets generated, that there’s a whole lot of inventory sitting in the back store I’m going to argue uselessly, meaning that some of these slow movers, even in the fast food restaurant chains, some of these slow movers might have six weeks of supply in the back store, which when you think about the frequency of delivery going to these stores, that could be 18 or more deliveries. I could have intervened and restocked that product 18 times before I go empty. That’s crazy. And it’s billions of dollars of working capital tied up in the back store. And I bring that point up to say as much as my My dear friends in the distribution world hate it when I say this, there is an argument to either work with your manufacturers to lower the pack sizes being sent to the stores or to each pick at the distribution level.

[00:13:47.480] That everyone hates. Even though everyone’s running big cash and carry operations and they’re doing it anyway, but they hate the idea. Not everyone hates it, but it is obviously shifting labor to distribution solution from the retailer is something that the distributor wants to avoid, even if it ultimately generates so much value. I bring that up to say, if I get into an environment where I’m doing each picking in a warehouse. Well, there are lots of, and I’m not going to give you specific examples, only because there are so many ways that you can develop a goods to person, meaning the product comes to a picker, the picker prepares a tote or prepares a pallet. There’s so many ways of approaching a goods person system that it would be unfair to pick one. And then we’ll have seven suppliers say, why didn’t you mention our product? And they’re all wonderful products. They all have their seasons.

[00:14:46.100] Okay, fair enough. All right. So then when we look at, let’s say, restaurants, why is it so important for them to be looking at making these technology investments? You talk about split case picking, and what’s the technology required to facilitate that?

[00:15:02.520] So the restaurant has one massive problem first, labor availability, which obviously, coming out of the pandemic, it was much worse. North America and across the world. We shut restaurants down. We had no choice, let’s say. And we devastated that industry. And to just find people who are willing to come back into it is hard. Today, that acute crisis is gone, and we’re back to the normal crisis of there’s not enough labor. And retaining labor is so important. You can’t have a revolving door of employees and have satisfied customers being offered top-level service. You want to retain employees, you need to give them good working conditions. To give them good working conditions, you need to eliminate the crappy jobs in a restaurant. And some of those are replenishing shelves in the back store, right? Attending to the deliveries, doing inventory counting. I mean, you can imagine going through, forget a quick service restaurant, that’s one problem. But let’s just take an Applebee Where now you do have 800 SKUs and 300 are in a fridge the size of this room. And you’re asking people to go in and do a count to the inventory. That is not their favorite job.

[00:16:43.210] People who go into the restaurant industry, the two basic things they want to do, deal with the public because they like serving, cook because they like cooking. I mean, that’s why- Too many. Yeah. Let me ask you, Nicola, do you know anyone who has said to you, I don’t want to serve people. I don’t want to cook. I just want to stock the shelves at the back, or I just want to count how many heads of lettuce we have left.

[00:17:08.530] I mean, admittedly, myself, they just want a good podcast, get your steps in. I can see it. Okay.

[00:17:15.240] That was not fair.

[00:17:16.530] That’s the point.

[00:17:17.530] But that’s one of the problems. So when we talk about AI and automation, seeing the back store, we can’t get to George Jetson about it. But there are technologies, there are shelves. It’s early days yet, but that doesn’t mean it’s not coming. It doesn’t mean we won’t figure it out. But there are shelves that can help you do inventory counts based on waiting of what’s sitting on them. I think some of the… Called it Augmented Reality eyewear technology can be very helpful. In lots of areas of that supply chain in the back store. I mean, the key is that we want to be able to easily and quickly send signals back through our supply chain that feeds people with not too much, not too little. That whole… That cardboard, okay? Just handling cardboard at the back of a restaurant is a problem. Anything I do to eliminate cardboard makes people’s jobs easier. The faster I can do receiving, the faster I can do inventory counting, the sooner I can get to call it an unattended, assured delivery so that I can eliminate on either party the need to count what I’ve received because my technology allows me to do so.

[00:18:57.580] Now, these are not small investments, and not everyone’s going to be able to do that yet, but that is coming. And all of that will achieve two things. It’s going to make the jobs better and more pleasant for the people who want to be in the restaurant industry. That will help with retention. It will eliminate… We will eliminate positions. One of the things that maybe in Europe and Asia, where the urban density has required, has forced people into solutions sooner than us. But the life on a pallet on a truck in the food may not be a forever thing. Can we prepare kits that can roll into the back stores with the inventory in that you’re just handling basically rolling shelves, empty and full shelves of kits? If you’re Again, I get caught up because I don’t want to mention names, but there are restaurant chains, particularly the most global, that are thinking about this because They’ve had to go to Seoul or Shanghai or London and New York and solve problems that when we think of our suburban environment, we think, well, that’s not a problem for us. But they’ve had to solve these problems in other places.

[00:20:32.760] And increasingly, technology is a huge leverage that they can use to solve the problems that we have in the back store, which ultimately is every hour you spend in the back store that you’re not cooking, that you’re not serving, is an hour you’re taking away from customer.

[00:20:50.570] Exactly. So at the end of the day, translates into improved service levels while also addressing the idea of cutting and managing costs. Yes.

[00:21:00.240] And releasing working capital from inventory. Those three things. Yes. Right. Yeah. And that will affect… So that affects how the backstore operates. The backstore, that will affect how a driver on a food service truck will operate. Again, if I think of those augmented reality glasses, I mean, one of the classic things that a driver has to deal with is in food service, we always in multi-stop food service delivery, delivery, multi-stop food service delivery, where a pallet might contain two or three or four stops on it. Well, we have to put a label on each case. When the driver gets into the bag of the truck at a stop, then he has to look and make sure this is stop 14, 14, 14, stop 13. Okay, now I forget that one. And then assemble the order. There’s a lot of labor that goes into that. I could imagine a world where the augmented reality glasses, not for driving, but you can put them on, get into the back of the truck, and it actually indicate through some light system what you’re looking for rather than you having to, especially with my eyes, get it. But then the driver, I think if anywhere, the driver probably is going to have to do more work in order to alleviate both ends, the warehouse and the restaurant.

[00:22:28.430] That brings up another interesting interesting point with the level of training and investment in change management that goes into upskilling workers and labor with the introduction of these new technologies.

[00:22:40.010] A hundred %. And especially if you think about the driver, the driver is on an hourly basis, the most expensive human in this supply chain. And putting an increased burden on them will mean there’s going to be more demand for pay. It may make sense, though, at the at the end of the day, to raise the profile of that worker and the work that they’re doing, because the value is so much greater. If you think about maybe the warehouse is loading a more complicated truck in terms of assembling an order at delivery. But if I can compensate that by giving them technology to make it easier for them to work, however, I’ve been giving them technology to your point, we have to make sure that the skills follow. The nice thing is most of this is gamification, right?

[00:23:37.080] Yeah, that’s true.

[00:23:38.140] And so most of the people who are going to become drivers over the next 10 years are really good gamers.

[00:23:46.240] So the Jeremies of the world.

[00:23:48.070] Jeremies, for sure. Yeah, exactly. I mean, because we all went through that phase where we were maybe a little bit overboard on our games. Most of us. Most of us. I know. I have my buddy Leo, who won’t listen to this podcast. And he’s talking about his son playing too much Fortnite. And I’m thinking, Wait, where were you when you were that age? Where was he? Where was he? Not in a basement like me, playing whatever the stupid the name of the day was?

[00:24:16.170] I can’t say I can relate too much to that.

[00:24:20.030] Well, you’re a much classier person than the rest of us, Nicola. No.

[00:24:23.590] But you have brought up some really good points around the practicality and the reliability of implementing automation. The article brought up fun and exciting things like smart cards and maybe these over-engineered technologies. But there are many practical use cases.

[00:24:40.450] Can I say two things to that? Yeah. So one, It’s a necessary but silly thing that we do. A new technology comes along, and we just invent out of a whole cloth how it’s going get applied. This is a messy iterative process. There’s much development, there’s much failure, there’s much wasted money to come before we land on things. When I was When it was first in this industry, RFID was going to take over the universe. It was the future. Walmart had their vendor mandate where they said within seven years, 80 % of our vendors or the vendors representing 80 % of our volume would all be forced into RFID tags replacing barcodes. Never happened. And then so the cool hip cynics like me would say, well, you see another stupid thing. And blockchain, similar thing. Blockchain came out and everyone’s, oh, this is going to revolutionize the world. The people who are always at the forefront of things are salesmen. They’re never actual… There’s the technicians who do the inventing, then there’s salesmen who are doing the take advantage of-ing. And then the reality comes later. So now RFID in the apparel supply chain is a completely realistic, normal, acceptable, in fact, encourageable thing to look at.

[00:26:16.200] But there was a period from the initial bang of RFID to today where everyone was licking their wounds from the RFID craze. Ai and automation, it’s going to have the same impact, right? Right now, for every automation article out there, there’s articles creeping in saying, how did we screw up this 40 million, 50 million, 100 million automation project? And to quote Alan Greenspan, Irrational exuberance is why. But anyway, we eventually will settle on once everything’s matured, on some very real things to come, and everyone has to keep that in the back of their minds. Sluff it off now, but it’s coming, and it will be game-changing.

[00:27:11.620] Well, looking forward to talking more about that. Well, it does come along if I’m invited back on the podcast.

[00:27:18.020] Nicola, I think this went well your first time. Yeah, that was funny. You’re a natural.

[00:27:22.960] Thanks, Charles. Just following in your footsteps. Oh, my God.

[00:27:26.050] All right. Well, have a great rest of your- Enjoy your vacation.

[00:27:29.640] Thank you.