Smart & Final: Grocers need to own the eCommerce Experience

Mercatus Radio presents the Digital Grocer - Season 3, Episode #4

Ed Wong, EVP and Chief Digital Officer, at Smart & Final joins us on the Digital Grocer Podcast at NRF 2020. Ed shares the process of selecting the right grocery eCommerce solution for Smart & Final. He explains the unique challenges of serving both household and business customers and advice for approaching the specific requirements that come with that.

When selecting an eCommerce provider, Ed explains two important requirements that Smart & Final had, “To control how we would want the customer experience to be, and be able to select a partner who’s going to be able to say ‘well, we’ve been there and done that’, versus, let’s say, engaging with one of the more legacy platforms where they would still need to configure and learn how to really adapt into grocery had been some of the initial requirements that we started with.”

Control over brand experience was a major factor for seeking out a new platform. “For us, we had a very specific objective in mind in terms of what we wanted to do. We were operating under the Instacart’s powered by Instacart white-label platform and certainly I think as the evolution of, not just us, but also Instacart and the Marketplace, I mean that was deemed appropriate for us to consider how to have a better control over our own brand experience, that we would want to maximize.”

Sylvain and Ed talk about the unique challenges that come offering online shopping experiences for both household and business customers. Is offering B2B eCommerce just reduced functionality, or is there more to the story?

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Enjoyed this podcast? Then you might like these resources:

• Blog Post: Navigating the Storm: Are Old School KPIs Enough to Guide Grocery Executives?
• Podcast: A retailer’s take on grocery eCommerce: Interview with Zac Wilson of Raley’s

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PODCAST TRANSCRIPT

Sylvain Perrier: Ladies and gentlemen, welcome to Mercatus’ very own podcast, Digital Grocer, episode 27, here at NRF 2020. I’m Sylvain Perrier, president and CEO of Mercatus Technologies and joining me is Mark Fairhurst, senior director of marketing.

Mark Fairhurst: How many shows have we done at NRF? This is like-

Sylvain Perrier: The fourth. It’s the fourth one.

Mark Fairhurst: Welcome everybody.

Sylvain Perrier: Yeah, welcome.

Sylvain Perrier: I had the chance to kind of walk around NRF. I was hoping to see an emerging theme, something that would give clarity to where the industry is heading in retail and I hate to say it, it’s a bit of a hodgepodge. There seems to be a rehashing of technology. I was upstairs in the innovation lab and at Mercatus, our Genesis was really building out a computer and a shopping cart. I spent millions of dollars building out this technology and I didn’t say at the time, we didn’t think it was a solution looking for a problem, but we cut off that technology when Apple released, not just the iPhone but the whole notion of an ecosystem. I’m all for entrepreneurs and new startups, but I walk in the innovation lab and there’s a company that actually has the same solution available to market. I started asking them questions.

Mark Fairhurst: That you did develop 10, 12 years ago?

Sylvain Perrier: 10 to 12 years ago. We still have all the IP and all this stuff. I saw a lot of robotics, but no one has a clear understanding of what it takes to support robots in an environment consistently to be able to deliver. I think that becomes a bit of a challenge. I’m hoping if I spent a little more time on the bottom floor and I kind of walk around, I’ll be able to see something, but nonetheless, it’s still a very exciting show. It’s probably record-setting in terms of number of people.

Mark Fairhurst: It’s been consistently busy. Let me ask, did you see anything that you thought was innovative?

Sylvain Perrier: No.

Mark Fairhurst: Okay.

Sylvain Perrier: I think there’s still the conversation around how AI is going to transform everything, but no one’s solving the data problem. I’m not seeing anyone that’s doing any practical application of AI in the hands of the consumer. It’s still very much back-office implementation. I don’t know. I’m just, I’m not feeling it.

Mark Fairhurst: That’s unfortunate.

Sylvain Perrier: I think it’s still these, I hate to say it, but it’s very much these silos that no one’s talking about how to unify and bring together to present something consistent out and putting the consumer at the center of the experience.

Mark Fairhurst: Yeah, we talked about that on the last episode. It’s interesting. How critical it is and yet so few retailers are actually embracing.

Sylvain Perrier: Well no one’s going to catch up to Walmart or Amazon and have a hope in doing anything unless you have this unified strategy being able to bring these pieces together. That’s a challenge. You know, we’re not the experts at this at all. We have an expert joining us today on our podcast. Disclosure, he is a client of Mercatus’ and a trusted partner at that. His name is Ed Wong and he’s the executive VP and chief digital officer at Smart & Final, not only digital commerce, but, IT, marketing, he was over 25 years of experience and interesting enough, prior to joining Smart & Final and actually spent six years with IBM as a partner in its global business services division, both the US and Japan. He also spent time at Charlotte Russe Holdings. He took on several supply chain and IT roles before being promoted to chief operating officer. Ed. Thank you to the show.

Ed Wong: Great to be here.

Mark Fairhurst: Welcome.

Sylvain Perrier: Ed, you and I have worked together now for the better part of a year, it’s been over a year quite frankly. Talk to us about when you decided to set on this journey of digital commerce at Smart & Final. What did you really want to achieve?

Ed Wong: Well, we obviously started with the, I would call it somewhat of a strategic outline. We wanted to approach digital commerce in a more comprehensive way with multiple components of approaches. One of those included printing our banner site and what we wanted to do to elevate our customer experience. At that time we definitely didn’t feel that we had a very robust platform, not just to deliver the experience that we would want as customers interact with our brand through online interactions, but also at the same time, in terms of the integration with in-store POS, relative to I guess the cross channel component and at the same time in terms of the third party service providing partners in fulfilling the end to end commerce experience.

Ed Wong: That kind of, I would say requirement to control how we would want a customer experience to be and be able to select a partner who’s going to be able to say, well, we’ve been there and done that, versus let’s say engaging with one of the more legacy platforms where they would still need to configure and learn how to really adapt into grocery, had been some of the initial requirements that we started with.

Sylvain Perrier: I will tell you a challenging project. We did an integration into a new POS system delivery partner, two delivery partners in a bunch of things. We actually wrapped it up… We didn’t wrap it up, but we got something to market in record time, which was great. When you look out, you’ve worked with apparel retailers, not just grocery, you’d been kind of over in retail. When you look out in a landscape and you think of digital engagement and commerce, who do you think is a beacon in the space?

Ed Wong: I think it’s hard to say because different segments within retail tend to carry their own set of customer experience wish-list, so to speak. I think that for grocery convenience is really going to be paramount to a great extent. What we wanted to do was to be able to include a lot of the grocery specific functionalities that our customers would expect. I mentioned before, out of the box, that’s available. Now, one component that we have some complexity is that we don’t just have household customers, we also have large order business customers. In order to satisfy both, we just need to ensure that we’ve got an open platform where we’ve got the ability and flexibility in working with number case team to fill in the blanks and address the gaps. Those challenges I think would be a lot more challenging to have another service provider or solution provider to be able to resolve.

Sylvain Perrier: Yeah, I would agree. The one thing Mark, that Ed challenged us on and I think most companies, you have to be able to self reflect and you have to be humble and you have to be open to this. Ed took our designs to force the research. To actually measure them against other retailers in the space. I remember the reaction in our UX team when I said, hey, I just want to let you guys know there’s a decision coming down from the top at Smart & Final, from Ed Wong. He wants to have an impartial third party kind of bless the designs. I think they freaked out. They’re like, well, what does this mean? I said, well, the beauty about this is you get to learn. If you’re getting it right, great kudos for you, but if you’re not, take the opportunity to learn. That is a practice and I want to say thank you to Ed, because that is a practice we’ve actually taken to some of our net new clients and it actually also scares some of those retailers in saying because they provide guidance during the design phase and they may not be comfortable in having, again, an impartial third party point certain things out.

Sylvain Perrier: Is that something that you’ve done in the past Ed? That you don’t have that impartial view?

Ed Wong: Yeah, I think it’s kind of not drinking your own Kool-Aid as much as possible. I think for sure, to your point, I mean, internally our business teams and our customer management teams, they have really heightened awareness of what it is that they would want to project to the customers of ours. That’s a very inside out perspective. What I think we need to do is do an outside in and when you combine the two, you don’t get a lot of validation exercises that you can go through. As you mentioned, we certainly did that initially before we went into configuration. We’re actually doing a round two Forrester that would be upcoming. I think that provides us with a combination of, like I mentioned, broad based perspective that’s objectified to a great extent.

Mark Fairhurst: The great thing about it, it pushes us to be better at the same time.

Sylvain Perrier: Well, and I think the one thing we underestimated as a business, when you think of B2B, the first thing that we go as a technology companies say, oh, well, it’s a reduced set of features and functionality. Well, that’s really, yes, that is the material of case, but the reality is, from a user experience perspective, it’s a different type of user. They’re not going to sit in the back of a restaurant searching for products. They likely buy the same things because they have a set menu maybe for a season. They may be buying the same products every two weeks. In your world when you look at this, I mean the cart must be significantly larger on a B2B perspective.

Ed Wong: Yeah, definitely. I mean our current experience is that it’s seven to eight times higher than what we’re transacting online. I think that capability that you would come along as kind of must haves, to your point, are definitely very different. Just the ability to handle purchase orders, that’s something that a household customer most likely will never need to invoke, but it’s very much a must have, relative to their business customer.

Sylvain Perrier: Yeah. Well, we had to immerse ourselves with our friends over at KPMG on tax exemption, doing the integration with Avalara and understanding what does it mean in capturing the tax exception certificates, making sure that Smart & Final is compliant in case of an audit and so on and those things. It’s an entirely different world. Even if I look at Hybris from the SAP perspective and what they do from a B2B perspective, we were kind of miles apart. You and I talked about this at one point. I think the industry has swung the pendulum so far into the world of VAC, they have forgotten the businesses and the value add that they can bring.

Ed Wong: Exactly. Yeah.

Sylvain Perrier: It’s kind of interesting. Ed, you’ve gone through this journey with Mercatus and over 25 years of experience, if you were to advise a retailer that’s thinking about getting into the realm of digital commerce or switching platforms, what would you share with them there?

Ed Wong: For sure, like most other things, just have some strategic framework in place. I don’t think it needs to be studied to death or all the components are detailed, but certainly I think that it’s fundamentally a business strategy in terms of how to engage the customer through online. I think if you start from there and understand, well, what are the permutations of how you would want to do that engagement and what would you deliver that engagement with, in terms of the capabilities that you would want out of the solution. I think even before Mercatus or any branded piece of software comes into play, as long as someone has that strategic framework, it will help provide that kind of guiding light in terms of how to differentiate when competing options are available on the table. I think that for us anyway, as I mentioned, we’ve had a very specific objective in mind in terms of what we wanted to do. We were operating under Instacart’s, powered by Instacart white label platform. Certainly, I think as the evolution of, not just us, but also Instacart and the marketplace, that was deemed appropriate for us to consider how to have a better control over our own brand experience, that we will want to maximize.

Ed Wong: Certainly, I think in working with Mercatus, not that Mercatus was the only available solution provider in the marketplace. We tested and validated another two before we ended up with the decision with partnering with Mercatus. I think things have, as you said, turned out really well. I think overall from my prior experience, it’s not an easy delivery program, but at the same time, we got it done in a very, very short period of time, roughly 10 months or so. I think talking earlier about the speak to value, I don’t think that it’s even a case where you’ve finished something in 10 months and end up kind of washing your hands and be done. I think that gets us to where we need it to be and then we can have a really solid foundation to evolve and further drawing our experience from. I think it’s been a terrific experience.

Sylvain Perrier: From your perspective, when we interview retailers, the one thing they cite is Walmart and Amazon and their size and their ability to innovate. I can’t think of one time those words have come up in our conversations. Do they keep you up at night?

Ed Wong: Not really. I just think that there is a high degree of awareness that anyone in retail should have as far as what’s happening in these fairly large monolithic companies, but I think that trying to keep up with the Jonses, certainly is not a strategy that’s effective and I think that we should learn from what they’re doing and where they’re placing our bets and evaluating what the outcome might be, because those are occasions where we don’t have to do the test and learn to the extent that, let’s say the Walmart or the Kroger’s of the world might be doing. I think that no matter what, grocery is a bit different from, let’s say apparel or general merchandise. I think that there’s a certain degree of, I call it land locking of the customer.

Ed Wong: Primarily the business in and of itself is so brick and mortar ingrained to begin with. I think that as we provide, as the customers evolve, even they were very heavily driven by brick and mortar. The options of buying online, the degree of convenience that we were wanting to offer and the speed of checkout become paramount. I think that those are definitely competitive areas that just because of the size and scale of Walmart or Kroger, they don’t actually have really a solid certainty to be able to win across the board. I think that from that perspective we’re obviously very aware of what they’re doing, but I think it’s more as validation checkpoints.

Sylvain Perrier: The one advantage that we have is in our integration with Smart & Final, we have one of the only really truly frictionless checkout processes. Where we have two different delivery partners TForce and Shipt. The moment they’re done the picking, there’s no re-scanning of the order at POS, at a terminal inside the store. That information is automatically sent down through Mercatus into the GK POS system and then back through for final charging of the credit card, which is phenomenal. Which from an operational perspective lessens the whole labor burden and I remember that being a key requirement at the onset through our design phase, which was amazing. Ed, you spent some time traveling the world, you’ve worked in Japan. We don’t talk as North Americans about the Japanese influence on technology or what we’re doing from an eCommerce perspective. Are you seeing some of that bleed in or is it more still we still look to Europe?

Ed Wong: I would say probably more towards the western side of the globe more than anything else. I think that if I look at what’s happening in the UK in some of the grocers there, comparatively speaking to, let’s say what’s happening in the C-store and also in grocery, in Japan. I would say we’re certainly more similar to the west than we are to the east.

Sylvain Perrier: That’s kind of interesting because we… I can’t think of one case where we’ve had someone from Japan or Korea. I’ve interacted with cold storage out of Singapore once and they were trying to do some stuff with e-commerce, but…

Ed Wong: Yeah, we’ve had a couple of inquiries from say the Philippines.

Sylvain Perrier: Oh, we did actually. The company is actually owned Lee Kuan Yew and his family out of Hong Kong and they’re kind of interesting because they have these very high end apparel stores and they also own integrated grocery and they’re actually trying to solve for both and we got into this interesting conversation about marketplaces. Ed, you and I have talked about this and this whole notion of the reverse Amazon business model. If you have the eyeballs, does it and not make sense they enable them to buy more than just grocery? What do you see as being the operational challenges of getting a marketplace up and running, if you don’t mind me asking?

Ed Wong: Yeah, I think it’s just the business team’s bandwidth inability to manage because our stores are a bit constrained with space. We have obviously a lot more expansion of assortment that are very adjacent to our core product set that we can do and some are actually very bulky, considering the business customers that we’re talking about. I think those lend themselves so well to being digital only. I think that that also is another advantage that we potentially can leverage from Mercatus’ platform on providing our business customers.

Sylvain Perrier: Ed, if you look at your crystal ball and I’m only assuming you have one, 2020 and you look at the landscape of the industry, what do you think the space is going into? What do you think is going to emerge? Are there any trends that you’re spotting?

Ed Wong: I think on the whole, to your point earlier about AI, I think that there is still a lot of resistance, let’s say, from retailers who are very much focused on, obviously the customer experience being very behavioral and so disoriented and how could a machine be able to enter into that space and deliver the necessary value that a customer would expect? I think that given time, there’s probably a lot that the machine learning and AI can help elevate customer experience. Whether it comes by way of in-stock improvement or whether it comes by way of shortening delivery time, whether it comes by way of interacting online with suggest to sell, cross sell, upsell, that makes the experience much more satisfactory. I think there are so many things that leveraging the science aspect of it that we can do to retail.

Ed Wong: I would say that probably is definitely one. I think the other one is the cost to serve. I think for grocery, particularly, the cost of serve is very high because of perishable product, because of the bulkiness of the goods, you can’t really leverage partial delivery and so on. I think if we can have some way of cracking that code on reducing the cost to serve, I think that would be another thing that we would want to work on.

Sylvain Perrier: That’s great. Ed, thank you so much for joining us.

Ed Wong: Thanks for the invite.

Sylvain Perrier: Thank you. Mark, how do people get ahold of us?

Mark Fairhurst: Go to the website, mercatus.com.

Sylvain Perrier: Thank you folks. Don’t forget to tune into our next episode that will be recorded here at NRF.

Mark Fairhurst: Yep.

Sylvain Perrier: Actually, who’s our next guest, mark?

Mark Fairhurst: You’re putting me on the spot right now.

Sylvain Perrier: It’s a toss up-

Mark Fairhurst: It will be someone just as compelling as Ed.

Sylvain Perrier: I doubt that.

Mark Fairhurst: Maybe.

Sylvain Perrier: Thanks folks.