00:00:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

00:00:18
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal, and I'm Tracy Alloway Tracy cat Cherry's something I don't know if I've brought it up on the podcast before, but I love grocery stores. I love like visiting different kinds of grocery stores. I love produce aisles. I like seeing new ones. If I'm like a rush or whatever, it's not so pleasant, but I really like grocery stores.

00:00:37
Speaker 3: How often do you do the weekly grocery shopping, Joe.

00:00:40
Speaker 2: Well, so we usually buy online, but I go to Key Foods, which is in my neighborhood, probably once or twice a week for things. And actually even those quick runs I actually enjoy. Obviously, unboxing is not fun, and there are aspects of it are fun, but like, that's an interesting experience and I like food.

00:00:58
Speaker 3: I will say I'm starting to comes cynical about the American grocery experience, which is terrible because I didn't go to American grocery stores for a really long time.

00:01:07
Speaker 2: So what years are you talking about? Like when you're in Japan.

00:01:10
Speaker 3: So I grew up in Japan. I remember going to grocery stores when I came back to Chicago in middle school and just being absolutely wowed by the variation that was there. You know, like literally a kid in a candy store running down the cereal aisle going out, oh, oh my god. I've never seen any of these things before, doing the whole what's the famous?

00:01:31
Speaker 2: So you can get how at least they spark joy, of.

00:01:33
Speaker 3: Course, of course, but now I think I take them as an accepted because now I'm sorry. I shop a lot at Walmart in Connecticut, which is sometimes a soul sucking experience. I shop a lot at the grocery store that we're about to discuss. I shop a lot at the nearest grocery store in Manhattan.

00:01:55
Speaker 2: Which one's that.

00:01:56
Speaker 3: That one's Morton Williams, Okay, yeah, and that one, I'm trying to be diplomatic, just depressing the price. I've ran in there once and I grabbed like a cup of soup, like freshly made soup, because I was having dinner, a girl dinner, basically twelve freaking guys.

00:02:16
Speaker 2: The Manhattan specific grocery experiences, I would say uneven, to put it best. There are some decent ones. But there's a lot of places that are like high end and expensive, yeah, and low end and expensive. You know what I'm saying, Like, you go to these places and they're like they're sort of shabby and they're dirty and stuff like that. You're like, well, at least I'm getting a deal, and then it's like, actually, no, it's just the worst experience and also it's expensive.

00:02:41
Speaker 3: This reminds me also when when my husband first came over from the States to join me here in New York, the first place I took him to was the Whole Foods on Columbus Circle Ruse. I just wanted to show him, look at this grocery store. It's crazy.

00:02:54
Speaker 1: You know.

00:02:54
Speaker 2: There's a new Wegman's at astroplace, which is where I get off, and I expected that to become part of my routine because I get that's where I get on the subway. I like it. It's cool and they have a lot of stuff, but it hasn't become part of my routine. So like, there's opportunity still, I would say for the better Manhattan and just the better grocery store experience.

00:03:12
Speaker 3: Still, it is very true that Manhattan has a shortage of let's say lower priced, lower price stores. Right, We've got the Whole Foods. Well, we have Trader Joe's maybe, yeah, true, the closest, but we have a lot of Whole Foods, a lot of Wegmans. I'm not even going to mention, what's the one with the g oh Christiti's, Morton Williams, places like that, But we don't really have you know, we definitely have a Walmart.

00:03:37
Speaker 2: Well in Texas, we have HG B which everybody loves. It's like one of the most beloved brands I think in the region. They're like super and they're huge, and they're clean, and they have good price and incredible variety and a sushi bar and a barbecue pit in the store. Anyway, there's a new grocery store opening up. We're recording this June eighteenth, tomorrow as of the time we're recording this, but tomorrow, like right in Times Square, right adjacent to Times Square. There's a brand new ality, which is I guess where you shop sometimes when you're in Connecticut.

00:04:03
Speaker 3: Yeah, so this is very unusual in my mind because you wouldn't expect a giant grocery store to open just off Times Square. I think the new location is something like twenty five thousand square feet, which is just absolutely huge qpressure for that here. I can't even imagine actually finding the space for something like that. And then secondly, you wouldn't necessarily expect I don't want to say discount grocery store, but yeah, like a lower priced grocery store that competes squarely with the Walmarts. The cost goes of the world.

00:04:33
Speaker 2: Totally, and they are I think substantially cheaper. You know, I search this, they claim that they're cheap. But also the third party.

00:04:39
Speaker 3: Well, we could just say we already wanted on a tour, we got a new location.

00:04:43
Speaker 2: You're a little biased because also they gave us a tour, So there's the disclosure. They gave us a tour, and they had all these like little snacks out for us and stuff like that. So I'm already predisposed.

00:04:53
Speaker 3: But on the plus side, we have personally witnessed ground wag you b four five ninety nine. It does exist, but I.

00:05:00
Speaker 2: Haven't tried it yet. Anyway, let's get to the conversation. Let's talk about opening your grocery store. Let's talk about like, how do you actually ring prices out of the system because that is the story and that is what's exciting for us. We're going to be speaking with all the US Chief Commercial Officer, Scott Patton. Scott, welcome to the podcast. We saw you yesterday inside of the new Aldi and now you're here on the podcast. So thank you so much for joining us.

00:05:24
Speaker 4: Thanks for having me, and so glad you could make it out to the store yesterday. It was a really awesome experience to walk through really Times Square, all the officers right for the Times Square. Amazing.

00:05:33
Speaker 2: Let's just talk about what is what does the chief commercial officer do? Tell us about, like what's your actual job and your career at all day.

00:05:40
Speaker 4: So I actually started with all the over thirty years ago. I've been through all the various operations from running stores to running a warehouse, and I joined the buying department about eleven years ago. So I'm responsible for all of the products in the stores and that's what I do. We work with the teams who developed the products and get them onto the shelf.

00:05:57
Speaker 3: So tell us about the new location because as we were just it's our same Times Square, not necessarily an intuitive place to start a giant grocery store.

00:06:05
Speaker 4: Yeah, so Midtown Manhattan. That's our second location in Manhattan. You're right, it's not intuitive.

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Speaker 2: Where's the first one?

00:06:10
Speaker 4: First one is up in Harlem. Okay, Yeah, So we have fourteen in the Chicago I'm sorry, fourteen in the New York area, one in Harlem Midtown now and another opening in Harlem next year, and two blocks off a Times Square.

00:06:19
Speaker 2: You're right.

00:06:20
Speaker 4: It's a very unique location for us, but a lot of traffic. We have a lot of tourists, we have a lot of commuters. There's going to be a lot of e commerce, and it's just a great location.

00:06:27
Speaker 2: There's a close space what was there before.

00:06:30
Speaker 4: It's a brand new building. It's a brand new building with residential on top, and we've taken the ground floor.

00:06:34
Speaker 2: Do you think that's an appeal? Like I think I would like to live above a grocery store. It seems like a nice like amenity. It's great.

00:06:40
Speaker 4: I mean there's going to be residential above us and unbelievable apartments and to have that convenience for the people who live there, it's going to be great.

00:06:47
Speaker 3: Yeah. A lot of cities in Asia, yeah, as you know now have mixed use building.

00:06:52
Speaker 4: Yeah. I love it. So much.

00:06:54
Speaker 3: Some of them even have daycare is on the bottom, and then the grocery store, dry cleaner, Like you take care of your entire life within.

00:07:00
Speaker 2: One compound, I'd be totally down.

00:07:02
Speaker 3: Yeah. So the Time Square location, I get that there's a lot of foot traffic, but how much of it is just creating a showcase for the ald brand in an area where you know there's going to be a lot of visitors, a lot of tourists, versus how much of it is the expectation that this is going to be a really busy location that's actually making profit.

00:07:20
Speaker 4: There's no doubt that having that visibility is going to be great for the brand. But to be fair, we intend to be very profitable at this store. We're going to have a ton of customers. That would be a very expensive billboard if we weren't going to sell a lot of groceries.

00:07:31
Speaker 2: We've done an episode, We've done a few like produce episodes. We recently did an episode on Tomatoes with one of the senior vps at Beldour. It was amazing conversation. We did a conversation a few years ago about the Hunts Point delivery distribution center in New York and maybe why it's not the optimal sort of node for delivery. What is the supply chain between? For example, when we entered the store, we were like in the produce aisle and tried some grape, some blueberries that are very nice. Why do you walk us through what is the supply chain from like where that grape comes from to where the distribution center is to the store and that journey.

00:08:10
Speaker 4: And that's a prime example of how we buy a bit differently. So we have over twenty six hundred locations. So what does that mean is we can't just buy from the local market. We start with the grower. I have the opportunity in my role to visit the growers. So we've been to the grape growers in California, in Mexico and Chile. And it really starts probably three to four years in advance in partnering with these growers. We go to the fields, we try their varieties, they're all sampled out, and we decide as a company which varieties do we want them to grow for us. From there they start growing. We have the contracts and they grow specific plots dedicated to our business. So of course we have the harvest. It goes straight from the grower into our distribution facilities and then to our stores often the next day. So it's a complicated supply chain, but the key to success is going all the way back to the origin. So whether you're growing grapes or berries or apple, those relationships with the farmers and the growers, that's actually what makes it. That's what makes it special.

00:09:05
Speaker 3: But in terms of the actual distribution into New York, because we've had conversations with not just grocers but people who are trying to build things in New York, and they talk about how hard it actually is to get bulky things into the city. How are you trucking in? I assume truckloads of groceries every day, and where are they coming from?

00:09:22
Speaker 4: So we come from South windsor up in Connecticut. We have a truck that comes over. We come at night because of the congestion, and you're right, it's very difficult to get a truck, especially into midtown. We have to have a bit of a shorter truck. We actually have to have two drivers.

00:09:35
Speaker 2: Say a bit of a shorter truck.

00:09:36
Speaker 4: It's a bit of a shorter truck because of the they can't hit the turning radiuses. So for instance, at the store, when the truck comes into deliver, it's a shorter truck. There's two drivers, one to kind of guide and watch the parking and make sure we can cut the radius back in, another one to unload the groceries. So it's a two team just to deliver groceries. And this store is going to get three to four truckloads a day. So it's a lot of effort, it's a lot of manpower, and it's a logistical really kind of a symphony to get it done.

00:10:01
Speaker 2: Well, let's just talk more about that, because when I think, okay, why do we pay a lot for groceries in New York City? Intuitively that makes a lot of just even the trucking component and the fact that it's a go onto the suburbs and they don't have to have like a guy thing and the bee is there a car, There is a kid on a scooter or something like that there. Tushila is a little bit more figuring that component out and the two drivers and like how that's sort of you know, the math of what that contributes or saves in terms of groceries.

00:10:31
Speaker 4: Yeah, and with everything we do and we're really focused on efficiency. You mentioned sushi bars and barbecue pants before, so we don't have those. But when we're going to put a truck, you know we're going to get two guys onto a truck, two drivers onto a truck three to four times a day. That goes into the calculus. Of course, we look at the rent we're going to pay. It's more expensive in Manhattan, no doubt about it. But then we look at the sales. It's just a math equation. We make sure that yes, there's going to be extra cost on delivery, there's going to be extra cost on on properties. That's just a fact. But it goes into the equation.

00:11:00
Speaker 3: So, okay, you've got trucks delivering the groceries overnight. You have a huge space. I should just emphasize we saw it. We ran through the aisles because we never got a chance to run through groceries. I'm going to speed it up two times. It'll look really good. Yeah, that's right. You're expecting a lot of people in that location. How are you going to be restocking the shelves because it's a big space, But there are a lot of people in New York. I imagine things will literally be flying off the shelves to some degree. What does that restocking process look like in a crowded city?

00:11:31
Speaker 4: Great question, and we have awesome employees at the store. First and foremost. Some unique things about how we restock our stores is all of our product comes in a display case. So again we go back to those supply partners and we say, okay, how can we restock the organic greens? How can we restock the spinach? They put into a display ready case.

00:11:47
Speaker 3: We take a box to conceive the items, yet.

00:11:51
Speaker 4: It's a tray, so our staff can restock case after case after case, and I'd have to stack at unit by unit by unit. So we're going to restock that produce three to four times a day, but we can do it really really fast.

00:12:01
Speaker 3: Joe, did you ever watch Superstore?

00:12:03
Speaker 1: No?

00:12:03
Speaker 2: What was it?

00:12:04
Speaker 3: I never heard about the show until recently. It's basically a thinly veiled sitcom of workers who work at Walmart. They don't explicitly say Walmart, but it's obviously Walmart, and I swear to got ninety percent of their time is stalking shells like unit by unit. That's basically all they do. Huh and talk good?

00:12:22
Speaker 2: Should I watch it.

00:12:23
Speaker 3: It's actually a really it's sort of like the office, but for Giant retails.

00:12:27
Speaker 2: I wrote the novel about work at Target that we should have someone recently in the last few years. It'll come back to me, we should have.

00:12:36
Speaker 3: You should watch that one. It's all some viewing.

00:12:38
Speaker 2: Wait, let's talk about we're going to get to I know a big part of your thing is that a substantial number of skews our private label. But before we get to the private label and how that business works out, I just want to like sort of clarify on things. So one of the brands that we noticed that is on your shell is Sweet Baby raised barbecue sauce, my favorite. And so what you're saying is you will work with Sweet Baby Rays. They're not going to like have like a custom all these Sweet Baby Rays or change the flavor, but talk to us about the degree to which a brand provider will modify the sort of delivery package so that it's like ideal for your logistical setup. Yeah.

00:13:13
Speaker 4: Yeah, we are mostly private label, but we do have some brands like Sweet Baby Rays, and we have them they will take that case and they'll do a display ready case just for us. So unique to all the and they'll even go a step beyond the display ready case. They'll put two or three flavors into that case. So for us, again, it's one shelf spot, it's one palette. In our warehouses, it's one one slot and we can get two to three flavors out of that. So we work with the brands as well, but really within our system.

00:13:38
Speaker 3: Yeah, how do you decide which brands to actually have in store versus when to go private label? Because as you say, like, there are a lot of recognizable things Sweet Baby raise craft.

00:13:49
Speaker 2: We saw Helman's mayonnaise, but we didn't see heinz as ketchup, so talk about that.

00:13:53
Speaker 4: Yeah, there's going to be some what we would call iconic brands, and we know customers love some of their brands. Now in this market, it's going to be Helman's. Down south, it's going to be Dukes.

00:14:01
Speaker 2: A great American in the Southern is not okay, yeah, got it.

00:14:07
Speaker 4: Yeah, So we'll have a few of that. But these iconic brands. Think about coke, You're gonna find coke in our store. You're going to find Sweet Baby Rays. They are one of the market leaders in barbecue sauce. You're gonna have the all the versions of barbecue sauce as well. But we're fine to carry some of those iconic brands as long as they can fit our fit into our system and hit the efficiencies and restocking that we need for busy stores like in Manhattan.

00:14:27
Speaker 2: Sorry not to just keep pressing on this like Helmans versus Hines is, but I think of like Hines, Tomato Sauce, the fifty seven, whatever it is like being.

00:14:35
Speaker 3: I would have thought of it.

00:14:36
Speaker 2: Yeah, I would have too, Like I would not have guessed that people are so chill with not having had what I assume it comes down to the data. But when you're looking at okay, when do we need to have an iconic brand versus a non iconic brand as our limited ketchup offering? First, well, how many Ketchup skews.

00:14:53
Speaker 4: Do you have? We have two Ketchup SKUs? Wow?

00:14:55
Speaker 2: And how many would it typical? I don't know if a typical grocery store between thirty and forty. I mean that right there is like a sort of remarkable state. So then what is the data that says, Okay, it's okay to like not have a hinsays, but it would be like a sort of mistake or strategic ara to not have a helmet. Yeah, this ocation, Yeah, there's two.

00:15:12
Speaker 4: There's I would call the data point would be private label penetration. We look at private label how accepting our customers of private label in that space in that category. And for instance, we know in mayonnaise there are some very dedicated fans in the debate between Helman's and Duke's that that's what We're not going to settle that today for sure. But also comes down to what I call Grandma's recipe. Sometimes grandma has handed down the recipe and she calls for a specific brand in her recipe, and we know those items and we can see that from the data, we can see it on social media, and those are the items that we want to carry in our store. And sometimes grandma's recipe is the reason.

00:16:02
Speaker 3: So more broadly all these is I'm not sure famous is the right word, but one of the differentiators of the grocery stores that you have fewer skews, right, you just have fewer products there, or you're more mindful about the products that you're actually putting on the shelves. What have you learned from that process that surprised you at all. Versus say, if I go into a Walmart and I've got sixty different types of ketchup staring me in the face, including the new Dill flavored pickle one which does something, yeah, tempting, tempting.

00:16:34
Speaker 4: We have two thousand skews in the store, probably four thousand varieties. Now let's take the ketchup example. So we just talked about the typical store is going to have thirty to forty varieties, and as you asked, we have two. I would simply ask the customer, do you really need forty choices for ketchups? Or we have organic? We are conventional? Is two enough? We have the right size? Do you need upside down? Squeeze, right side up? Squeeze small glass, big glass? And what we actually we did some I will call it. I'll call it a study, but I'll call it some interesting walks with customers through our competitors, and sometimes you would stand in front of so let's say an olive oil selection ketchup is thirty to forty olive oil could be fifty or sixty different selections, depending on where you're shopping. And what we found was afterwards the customers felt less confident in their purchase. So we have four different varieties of olive oil. Four is a pretty good selection for our store. You're gonna have organic, you're gonna have Sicilian, you're gonna have pure, and you kind of extravergent. Good selection. If you're a consumer faced with sixty different choices of olive oil, how do you know which one to buy? So they were less confident in their choice when they were trying to choose from sixty. When you have four, they felt pretty good about their selection. Unscientific for sure, but to watch the reaction on the customer's face when you walk them in front of it, they were really puzzled with which one do I buy?

00:17:49
Speaker 2: This is unfair question on all sides around what do you think conventional wisdom is in the grocery store business? If we're talking to the chief commercial officer whatever cute food, what do you think the conventional wisdom is in grocery about why it's important to have sixty different olive oil skills?

00:18:06
Speaker 4: It's about selection. The belief is that customers want these different options, and to be fair, customers do want some of those options, and it can come down the shelf space, which suppliers are paying you to be on their shelf, and sometimes the more you pay, the more shelf space you get. So at all, you know with our private label we have two ketchups. There's no shelf space, there's no slotting fees, and that's a big difference. So yes, there can be selection, but we need to move those articles through the store very very quickly.

00:18:31
Speaker 3: Well, talk about this further. So again, like a hallmark of all these is fewer skews. How does that actually feed into, I guess, more efficient processes for the grocery store and then lower prices for shoppers.

00:18:43
Speaker 4: You mentioned the TV show earlier about the people, and I grew up in a grocery store, so I was I didn't grow up, and so I worked there in high school and I was paid probably three twenty five an hour to come in at night and turn the labels and stock everything forward and me and eight if my buddies would do that for about six hours. And you think about that cost, how expensive that to do that in a grocery store. And I was in a small local grocery store. Think about a big competitor who's paying all those folks to do that. Now, our products come in, you're in the case, you only have two thousand SKUs to put on the shelf. We're not having our folks come in and turn the labels in front everything at night. In fact, they sell out so quickly we don't need to. So that's just one example of all that cost that goes into turning those labels and pulling everything for it. We don't have that.

00:19:22
Speaker 2: What is turning the labels mean? So let's walk through some math. Let's say I don't know. Let's say a store sells a thousand bottles of olive oil a day. I don't know the number, but that's probably somewhere sell its a thousand bottles. And let's say that store sells five hundred brands of extra virgin and have five hundred brands of organic, and then the earth bottles. And then there's another store that sells a thousand bottles of olive oil a day. But it's like fifty saciliate, fifty organic, fifty extra virgin, fifty whatever, fifty whatever. Walk us through the math of why a thousand bottles with the two skews is going to be significantly more efficient and cheaper from a store perspective than the thousand bottles with more skins.

00:20:02
Speaker 4: So when the truck comes in. At a traditional grocery store, let's say you have fifty different skews. If you have to restock them all, that's fifty different cases you have to open. You have to find the fifty different cases. You have to match it up to the spot on the shelf. Restock it. Make sure you have the right one, Get the labels all turn the right way, get the bottles all square. You don't want to drop any So you have fifty different options. So one person is sitting there with a cart with fifty different cases trying to match them to the right spot on the shelf. Come to the oldie store, we have two. Sorry, olive oil, we have four. You can very clearly see this one goes right here. So we can literally restock all of our olive oil in probably two percent of the time that it takes to stock another store. So just think about the math on trying to put that puzzle together of fifty different varieties compared to four.

00:20:48
Speaker 3: Your price labels are digital, right, Yeah, most if not all of your stores now all of our stores are all the stores. Okay, how does that help with labor costs. And then also I have to ask, there's been a lot of criticism of some of these digital labels because people think they're dynamic pricing and that as they reach for an avocado, the price is going to go up by two dollars or whatever. How should we.

00:21:10
Speaker 4: Think about those Yeah, it's a little handle that part. First, we've heard those same criticisms or concerns out there. We do not do dynamic pricing. We would never do dynamic pricing. Actually, all of our stores have the same price. We change them usually once a week or so, depending on what's going on the produce.

00:21:25
Speaker 3: More New York store would have the same prices.

00:21:26
Speaker 4: Same price in New York as out in Connecticut. And I know that's going to.

00:21:30
Speaker 3: Be it's hard for me personally.

00:21:31
Speaker 2: It's just a little.

00:21:32
Speaker 4: Pleasant surprize for those in Manhattan and they walk in and they say, you know, a chicken breast for two nineteen a pounds or eggs for a dollar forty seven, So it's going to be kind of amazing. But when we talk about the electronic shelf labels, we were spending between three and four hours per store per week to change out our signs. So when we switch to the digital version. We save all of that labor. So again, twenty six hundred stores times four hours a week. You can do the math on that. Think about all that savings again. That's how we get Chicken Breast down to two now, team, but the opportunity is there to abuse that system, but we will not do that.

00:22:04
Speaker 3: So just to be clear, I mean, the reason you were changing out physical labels is because the price were changing. The prices were changing, but you're not changing them on a minute to minute kind of.

00:22:13
Speaker 4: Now, we would usually change them once a week.

00:22:15
Speaker 2: You know.

00:22:15
Speaker 4: We have the all the Fines area where those come in. We have one hundred new items every week. I don't know if we'll talk about that, but we'd have to put all those signs out, take the old signs down. That's a lot of labor to do those things. Well, we don't have to do with that anymore.

00:22:26
Speaker 2: This was something I did not know about prior to yesterday's field trip. So the all the Fines section, I guess apparently your fans have dubbed that the Isle of shame. They had. So this is where some brilliant merchandise, like a true showman, a merchandizer has figured out something, so explain these Explain what this aisle is and why it's so iconic too. So there's like a four million person Facebook group dedicated to this specific isle. Where did this come from? This aisle that's so called Isle of.

00:22:53
Speaker 4: Sham, So it actually to explain the concept. You know, you walk into a grocery store, you're expecting to buy groceries, your soup, your sushi, all those time types of things. And we have a whole aisle that's a lot of general merchandise. So we're going to have swimming pools, we're going to have seasonal right now, fourth of July is coming up for World Cups in town, so we have those articles as well. The origins of that actually goes back to our origins in Europe. So if you think about European I know, if you've been to Europe, they don't have a lot of the competitors that we have here, a lot of the big box stores. So all the actually had a pretty big business and still has a significant business selling these types of general merchandise. It could be diy, it could be paint, it could be power tools. So we took that concept when we came to the US and it's been pretty successful. Now, how it's different in the US is it's still very unique that you're going to have all of these articles right next to your groceries. So what we do is we bring in about one hundred new items every week, and they're going to be i'llcohol it random, but not so random. They're actually going to be the items you need when you need them. So we're not going to carry these articles all year long. We're not going to have an inflatable pool in February. If you look at the competition, they will have that sitting on the show. So we bring in the inflatable pool right when you need it. So back to your comment on the Isle of Shame, which I will say, we do have a Facebook group started by our fans and it's called the Isle of Shame or AOS, and this popped up I think four or five years ago, and we started looking that as a business, saying what is going on here? What is happening in this isle of shame? And as a retailer, you're always worried about your brand. You're concerned about your brand, and you see this growing Facebook group called the Isle of shame, and you have to ask yourself, what are we going to do about that? So it is one hundred percent driven by our fans, and really what happens is our customers come in each week, they start posting back and forth, Oh look what I got. I got the pool, I got the chainsaw, I got whatever it is, and they're having a lot of fun with these things. And this group has grown to over four million users on a regular basis. So origins of Isle of Shame pretty interesting. People were posting onto Facebook. I went to al the I got my ketchup, I got my barbecue sauce, I got my olive oil, and I also got these que athletic shoes. And then they were like, I'm so ashamed I didn't stay on budget. I'm so ashamed. So they were posting these shame photos from trunks of their cars, from their kitchens. We sell a tremendous amount of candles. People were posting their family rooms with fifty sixty seventy different candles.

00:25:17
Speaker 3: Of all these and they were scented candle. I fully admit my basic noess when it comes to scented candles.

00:25:23
Speaker 4: So it was shame in a good way. So I think as a brand, we've said, okay, let's not fight this. It's great because people love it. So it's the isle of shame. It's the all the fines, and we love that our fans want to post about it and talk about it. And we learned from this as well. So, like I said, I run the buying department and we have great buyers out there. They watched this all of the t.

00:25:59
Speaker 3: You've been in this business for a long time. It feels like one of the things that's happened I can't even say relatively recently, but in recent ish years, is that social media has become such more, such a bigger force when it comes to shopping. So you have Facebook groups like the one you just described, and you can watch those and maybe get a sense of what customers are liking. You also have social media trends, so every once in a while, you have a food item or an Alison Roman recipe that goes viral and suddenly everyone wants to buy new tomatoes or a particular type of cheese. How has that impacted the buying process for you?

00:26:35
Speaker 4: Certainly we have to pay attention to those trends. And you mentioned the FETA cheese and tomato recipe from a few years ago. Our feticheese sales went through the root, so we had to work very quickly with our supplier to get more feta. More recently, one is the sourdough trend, So sourdough baking at home, the sourdough trend. Now, Sarado's not easy. You got a future starter. I would love to do it. I don't have the patience for it. But that tells us and our buying team, Hey, what's going on with sourdough. So now we've launched a couple of soaradough items a couple of years ago. It's actually the top performing item in the bread set now. So we are selling over half a million loaves of sourdough every single week in our stores.

00:27:11
Speaker 3: So when you suddenly see feta flying off the shelves, how long does it take you to actually figure out what's going on here and what's driving the additional demand, and then how long does it take for you to respond to it?

00:27:22
Speaker 4: And that's one of the great things about being private label, because we're in control of our label, we're in control of our supply chain. We work directly with our producers. So if we were a brand, we'd have to call them and say, hey, can we get more of your brand that you're sending to every other retailer. We go directly to the manufacturer. We say, look, how can we get more line time, how can you dedicate more ald product? What can we do with packaging? It can be as quick as a couple of months, It can't take a little bit longer depending on the item. But being a private label, we can just pick up the phone called directly that supplier. Oftentimes it's the owner, the president of the company, and say, look, what can we do about FETA? How can we expand your sourdough line? What can we do to help you? Then we partner with them.

00:28:00
Speaker 2: And I had never I had never gone into an all day before, and I'm not sure I would not I would have noticed it had you not pointed it out, But then once you pointed out it was quite obvious. So for example, like on a bag of chips, you have really big barcodes, and that either in some boxes, then you notice had a barcode on on every surface and some of it really big barcodes, and it's like, okay, I get that that's intuitive. It makes the swiping faster. Give us a little history of barcode innovation and how do you actually sort of measure the optimal I guess ratio of adding barcodes and figuring out how much that could contribute to faster throughput versus adding barcodes and then like you can't even see what the product is. So finding that sort of efficient frontier of barcode allocation on a package.

00:28:44
Speaker 4: And I think before we talk about barcodes and scanning, we actually have to go all the way back to before we had scanners. Okay, so we were actually the last retailer to roll out scanning and soores. So I started with a company in nineteen ninety five. I showed up on day one in my training district manager said I hope you've memorized all the prices by now, Oh my god, And I had this look on my face and I said, no, No, No one told me about that. Memorized all the price, memorized all the prices. So up until nineteen ninety eight, all of our employees memorized all of the prices and they would enter them by hand on an old fashioned ten key. And so the price memorization was critical to our efficiency. We talked abou efficiency and throughput. Now you could say why didn't we do scanning? Back then our cashiers were they were too fast. We couldn't find a scanning system that was fast enough peak up with our ten key. So we did two things. One we started working with scanning manufacturers and the bi level scanner, which you may or may not be familiar with. If you think back long, long time ago, there was one scanner it was level yeah and cashiers. So bi level scanners were essentially created out of our input saying, look, we need to do this faster by level.

00:29:49
Speaker 2: So that means there's the horizontal service and then the version. They're both have a chance picking up the bark exactly.

00:29:56
Speaker 4: So that was one of the innovations that we were pioneering with our suppliers to say, look, how can we move memorizing prices. Wasn't the long term fit for sure, It's very difficult, by the way, but when you have these bi level scanners, says okay, there's a chance here. And the second part was on packaging. So I think we've all been in a grocery store and you've seen the cashier struggling to kind of turn the item and self checkout.

00:30:17
Speaker 3: Yeah.

00:30:18
Speaker 4: Yeah, So we came up with the idea and we're just gonna have multiple bar codes. So we measure everything we scan, right, so all of our associates they measure on items permitt it and we can we can track the items per minut it. So if we're going to do a scanner update, does it pick up scanning faster? We track those items per minute. If we do packaging innovations and we get we'll get feedback from our store staff to say, look, this item's not scanning well. So to your example, you didn't notice it in the store, and actually most of our customers don't because we hide it so well. So you can take an article, any item in the store, you will find four, five or six barcodes and until we pointed out to a customer, they don't even know it exists. So hopefully people go check their pantry and go, oh my gosh, I never noticed it.

00:30:56
Speaker 3: Well. It is funny though, on the chips example, it almost looks like it's part of the bag design because it's like a strike basically it goes around the whole thing. But wait, now I'm thinking back in the age of when cashiers were memorizing grocery prices. Do you think that had an impact on the monetary policy transmission mechanism? Do you think, oh yeah, price increases didn't filter down into it.

00:31:18
Speaker 2: Would It would have been too burdensome. On the compliment is like, do another memorization?

00:31:25
Speaker 3: Someone needs to do a paper. Yeah, yeah, we should, Okay, obvious question though. The barcode thing kind of blew my mind because, as you said, I've never noticed it before. How come other grocery stores or other brands don't do something similar Because.

00:31:40
Speaker 4: We're a private label. These are our products and we use that real estate. We designed the labels, we designed the brands, we control the ingredients, we designed the labels. So for us, we're based on efficiency. I would say some of our competitors aren't. Is it focused on that it does take up real estate on the package, There's no doubt about it, But the fact that nobody notices it is pretty interesting as well. So for us, it's strictly productivity. And since we control the product and the packaging, we could put twenty bar codes if we wanted to.

00:32:05
Speaker 3: But if I'm like a hoggin DAWs or something, and I'm designing my box of ice cream sandwiches or whatever it is, I would be reluctant to give up some of that additional space to barcodes.

00:32:16
Speaker 4: I think so. I mean, if you're a brand, you want to talk about the products, and we have the romance copy, and you want to tell the history of the product. I think they're more focused on that than the retailer's productivity. We're focused on the productivity so we can get the savings for the customer. But you're absolutely right adding romance copy and all those great foods on the back.

00:32:31
Speaker 2: Of the art.

00:32:34
Speaker 4: It's called romance copy.

00:32:35
Speaker 3: I have often felt feelings of romances. I read the back of ice cream packaging.

00:32:39
Speaker 2: You ever like those things, It'll be like Bob and Joe's corn chips, and it's like the story will be like Bob was working at Goldman Sacks and realized, why am I devoting my life to M and A when I could be devoting it to like design bake. I always I'm not a fan. I always think that's I do not need romance.

00:32:57
Speaker 3: You need to know the origin story of your potato chips, Joe.

00:33:00
Speaker 4: You need more barcodes.

00:33:01
Speaker 2: Yeah, yeah, talk to us about what you see in this sort of this current say to the art of self checkout and the reason there are a couple of things I ask because, for example, Unicloe, which is where I buy a lot of my clothes. I love their self checkout, but there's clothes. It's on grocery, but you dump all of the clothes into a bucket, it spits out a price probably like RFD or whatever. It's done. It's that. And then so my local key Foods, you're like doing the thing where you're twisting half the time, like someone has to come by and like swipe something. Maybe something will need an age verification. It doesn't really quite seem to work yet. And so I'm curious what you're seeing at all day in terms of where we are with self checkout technically, I think it kind of drives people crazy.

00:33:43
Speaker 4: Yeah, I think it's it's a mixed bag. I mean, some people love it, some people don't love it. And for all the reasons that you said, you know, RFID hasn't come to grocery yet. RFID is a pretty expensive technology when you're talking about selling avocados and tomatoes. So RFID hasn't quite made it there yet, even the best self checkout, you're gonna have to have an age verification for alcohol, You're going to struggle sometimes to weigh the produce. So we have it into about a third of our stores. I think some customers love it. But in of our stores that have self checkout, we always have an employee checkout as well, and that's the option to the consumer. I think we're still learning. Retailers are figuring out what works best for them. Do you want a corral, do you want an attendant? What's the best layouts corral? So you might want to move people through more of a line, or do you want more of a separated area. So the layout of the self checkout can have a pretty big impact on the effectiveness. How many people are monitoring it? And by the time you pay someone to stand there and monitor it, could you just scan their groceries for them? Yeah, those are the questions that I think all the retailers are facing right now.

00:34:38
Speaker 2: I actually think Tracy, the way the Ligmans does it and Aster plays with self checkout is not bad. Or they have one line and then like thirty different or fifty different machines and they're like you in twenty five you at twenty eight. Yeah, that it actually seems to work reasonably well compared to some of the other versions I've seen.

00:34:54
Speaker 3: I think, I mean, I think it's fine, especially in New York where people are usually like grabbing a few items and then just leaving. Yeah, I could see the argument for a self checkout. But actually this brings me to what I wanted to ask. You opted for no self checkout at the New Times Square location, so I'm really interested in why you decided to do that. And then secondly, you mentioned corral versus line. So there is a big space in front of your checkout counters that we saw yesterday. What system is that and what's the logic behind having that particular system in New York.

00:35:23
Speaker 4: I think when you think about self checkout, the appeal in that and a lot of our competitors is their checkout system is pretty slow. So we've already talked about we have our multiple car codes, we have our scanner systems. We're incredibly efficient, so we don't always need the self checkout to speed that process along. Now that space is there, we might decide in the future to try some self checkout. We want to have the real estate and available to change the layout if we think we need it. So I said, we're still trying to figure out what works. But for us, if there's three people in front of you in line at an Aldier store, you're going to get so get through so quickly you may not even need the self checkout. And I will say, if we've watched people in self checkout, it's kind of like standing in a food restaurant. Which one do you pick? Who's going to be fastest, who's going to be able to figure out the machine? That can be a bit of a frustration as well, because if you pick the wrong one, you could be waiting even longer, even in a self checkout.

00:36:10
Speaker 3: So the space we saw yesterday, that's just you go up, you decide which checkout you want to go up to. You're not waiting in a single line. No, okay, that was my question. I found line management really interesting for a few years, and I kind of wanted to write a book about lines and like the strategy behind lines. So maybe I'll get back into it.

00:36:27
Speaker 2: I'm sure that we could do, you know, I'm sure there's a lot of really impressive mathematics behind line and queueing theory. And all that stuff. How many different types of green grapes are that we talked about it yesterday and I just let you go back to that. Okay, go to the farmers, you pick a grape, like, how many different options are you looking at? Et cetera. Novelty And we talked about this again with tomatoes, they alway seemed to be coming out with the new tomatoes. Where are we at with the great market?

00:36:51
Speaker 1: Yeah?

00:36:51
Speaker 4: So the great market is fascinating because for the average consumer, which we are all average consumers, right, you have green grapes, you have red grapes. You go to the store, you want green, you like red, and you ask a customer, I like the green ones. I like the red ones. But when you get into the details, like I said, we have an awesome produce buying team. There's over one hundred varieties of green grapes. So when you go to the Aldie store or the competitor next door, likely you're going to have two different varieties. Now, each of those varieties has a different tape, flavor profile, different yield. The higher the yield, sometimes the less the flavor. So there's trade offs and all those types of things. So what we do you know, we work with the growers. We mentioned this earlier. We figure, you know, what's the best flavor profile. We don't want the customer to have to think about it. We want them to come to our store, come to Aldi and say I love the Aldie green grapes, or I love the blackberries. I love the blackberries, and they don't know the.

00:37:36
Speaker 3: Details berries huge, they have that.

00:37:40
Speaker 2: Sort of tart that.

00:37:42
Speaker 4: Yeah, and that's that's another example of picking the varieties. So if we were just buying off the market, you're just going down to the local produce market and saying, give me whatever blackberries you have, You're going to get what they have available. Working with the grower, you can narrow that hundred varieties of green grapes down to the one or two you want to have in your stores. What's in season, what's going to have the right flavor profile. Don't want it too sour, you don't want it too sweet. You want to have good shelf life, produce waste. That's all those types of things go into the decisions of our produce team. It's actually pretty sophisticated, and it's fine the customer take it for granted. We just want them come in and say these green grapes are great, but we've done all the work to figure that out with the farmers.

00:38:17
Speaker 3: I want to ask at least one what ald you can tell us about the macro environment right now type question. So, one of the stories that we've been talking about on the show, and lots of other people have as well, is high produce prices, higher beef prices, certainly general inflationary pressures on the consumer. And I'm very curious if you've seen that in the spend at your own stores, if you've maybe seen smaller basket sizes, or maybe you've seen people training down from beef to chicken, that sort of thing. What are you seeing in terms of inflationary pressures on your shoppers.

00:38:52
Speaker 4: So shoppers are I think they've been under pressure for several years now, and for all the reasons we talked about before, whether it's a case design or the PCs or going straight to the farmer. We try to keep all those cost pressures down, but we're not immune. We're not immune to commodity market. You mentioned beef. For instance, beef prices are at seventy year highs, so we still see our customers buying beef However, I'll give you an example. Ground beef right now is relatively expensive by historical context. You can talk five ninety nine or six ninety nine pound even at the ALDI store for ground beef. What we've seen is some consumers opting for ground turkey or ground chicken, a nice substitute, a good quality of product, still fresh, probably thirty percent cheaper or forty percent less expensive, and that's a good option. Customers are still going to buy their protein. Protein is all the craze right now, Yeah, but we have seen some switch in between maybe a higher protein, expensive protein like beef and a lower cost like chicken.

00:39:43
Speaker 2: I guess we should ask you a question about that protein all of the craze right now. So it's like the problem with all this, there's a lot of confounders, right because sailouts changed in the last ten years on all kinds of levels. We can talk about the role of social media. We can talk about obviously COVID and inflation or just co of it and how that made sour dough bread a thing the hobby. But GLP one's clearly part of the story. I think with the protein boom, what are some sort of like clear data points that you see where you say okay, like the golp ones are changing consumer buying behavior other than just say yes, they want more protein.

00:40:19
Speaker 4: Yeah, so glp ones. We worked with some of our partners probably eighteen months ago and I think it was roughly five percent of the population and that time was on glp ones. We'd have to check that, but they also said, when this goes to pill form, which is happening right now, we're going to see that adoption rate go up. So as glp ones are coming into pill form, of course we're seeing more protein sales. What's interesting is if you talk to the meat team and the meat growers out there, they would say, we're the original protein, and of course we're selling more of that. But we're seeing is protein really go throughout the store? Protein bagels? Oh yeah, are you talking about protein popcorn? Which there's going to be a point when it comes to far we're rolling out of protein sparkling water. So our data points would say it's actually quite taste when you take a protein sparkling water. Anything with protein right now is accelerating. I think there'll be a pullback at some point.

00:41:07
Speaker 3: Yeah, the pendulum needs to swing to fiber. Americans need more fiber.

00:41:12
Speaker 4: Fiber is coming on as well, Okay, you can have fiber. Bean sales are actually up significantly real, Yeah, we're selling significantly more beings.

00:41:19
Speaker 3: Is that a GLP one thing as well?

00:41:20
Speaker 4: It's a fiber, it's a fiber protein combo. Yes, we have a Greek chickpe that we've just rolled out, which is actually amazing. And I would say two years ago we wouldn't have carried a Greek chickpea, but now we've rolled out a Greek chickpea high in fiber. Customers are responding to it. We're rolling out of fiber water. You're right, more protein, more fiber, And for us, it's making sure we have the products the customers want and being on trend. But bean sales five years ago, bean sales weren't searching. But we're seeing a research in some of these categories that maybe weren't thriving in the past, but now they're starting to come back to life.

00:41:52
Speaker 3: That might also be inflationary pressure because one of the greatest value meals, most filling meals you can ever make, is red beans and rid as. I like to say. Anyway, just going back to the sort of competitive advantage of all D. So we talked about your own label and how that makes you more efficient and all of that. We've seen a lot of other stores, I guess grow their own label options. So Walmart I think has it's called great value or something very obvious like that. And they've been talking about the customer like trading away from known brands into their own great value labels because of the inflationary pressures. Have you boosted your have you ever decided to do your own sort of al D brand for a lot of these items, because when we say your own label, a lot of them don't say all D. They say some random forms, something acres, you know, something pastoral like that.

00:42:52
Speaker 4: Yeah, So we we p asked our customers a couple of years ago, we said, how do you feel about the Alder products? And they say, we love your products, and we love your prices, we love your quality, but they don't understand our branding. So about six months ago we made a big announcement that we need to change the way we brand. So right now we had over ninety different we'll call them all the brands in the store, And you're exactly right. Burman's would be a good example. It was the Burman's Barbecue sauce. So we asked our consumers, We said, do you understand what's happening here? Of course I've worked at all the alcohol it too long. When you're an insider, you don't see these things. You're like, Okay, of course Burman's is Burman's Barbecue sauce and Sweet Harvest's apple sauce. Everybody knows that. And the customer said, no, we actually don't know what you're talking about. So we said, okay, what should we do? So we asked them, which brands do you know? Of course clancies of our chip brand. That's actually a lot of customers knew that brand. Mama Cozy for our frozen pizza, they knew that one. So we're switching from ninety brands down to about twenty three. Now that's a big departure. We're going to relabel every product in the store. That's that's a big shift for the consumer. But even within that, you're exactly right. We're going to put all the on the front of the package because all these is a great brand. We've been in the States for fifty years and we recognized I don't know why it didn't dawn on us. Early we didn't have Aldi the logo and the name on the front of the package. It was always on the back. So now when customers come in, they're going to know it's an Aldi product. Now, the trick is, we have ninety percent private label in our store. So if you imagine a store with all all the on the front and it's ninety percent versus competitors are going to be twenty five to thirty percent, it could look a little bit boring. So the trick is to make sure that we designed the labels in a way that it's not boring.

00:44:26
Speaker 2: That actually is my final question. I could ask a ton of grocery questions. But before it was called private label, like when I was a kid, they were called generic, and generic is like basically synonymous with boring. When did the grocery industry sort of figure out that these quote in house brand, that this kind of business should not be called generic and should be called private label, which does not sound as boring. Yeah, I think there was a negative connotation. He bought the generic code, you bought the generic. Catch up?

00:44:54
Speaker 4: What in generic? If you think about the labels, if you go back, they were black and white. Yeah, they were actually poor quality generic. It was poor quality. It was actually not a good quality, and it was labeled appropriately because it looks.

00:45:04
Speaker 2: So when was the moment where it's like, let's actually make these appealing things.

00:45:08
Speaker 4: I think we had something to do with that, because in nineteen seventy six we opened up with all private label, So I think we started the private label transition. Now, it took a long time for our competitors to catch up, but this is what we've done for fifty years, So I think we started the trend. We started with great labels, we started with good quality, and then eventually you can see that cost difference. So if you're talking thirty to forty or fifty percent difference for us, the consumers resonated with it. Now, if you're a competitor, do you want to sell the branded product or do you want to sell your private label? That depends it depends on your margins. But we are set up to develop those products. Our whole buying organization has been buying and developing products for fifty years. And I talk about buying, it's easy to buy a branded product. You call up your local CpG and you say I want to carry these five skews. But what's my cost? You negotiate a little bit, You have a little back and forth, which is always fun to negotiate. You get a cost, it's on your shelf and.

00:45:59
Speaker 2: Off you go.

00:46:00
Speaker 4: If I want to do that with a private label, we have to have an idea. We have to have a buyer who says, you know what, I want to have a Greek inspired chickpee. We have to go find a supplier. We have to create the recipe, we have to sample it, we have to send it over. We put in our test kitchen, we sample multiple varieties, we say this is the variety I want. Then you start negotiating the costs, and then you ship it to the store. So it's a whole different business operation developing and selling private label products as compared to i'll call it just buying and selling brands. Much more complicated and requires expertise. And that's why I say we've been doing it so long. That's what we're built on. It's easier to just buy someone else's product, but when we're developing our own, it takes a lot of skill, a lot of market research, and a lot of category management.

00:46:40
Speaker 2: All right, Scott Patton, thank you so much for coming on onlinees. I love talking about food. You know, the Times Square All Day is not on my typical route, but I'll try to check it out soon once.

00:46:49
Speaker 1: I would.

00:46:49
Speaker 3: I would go there for the hot honey goat cheese that we have. I would make a special trip.

00:46:56
Speaker 2: Yeah, we'll go there in one of day's afternoon.

00:46:58
Speaker 4: Yeah, well, I appreciate thanks for having.

00:47:12
Speaker 2: Interesting I thought there was one. Actually, I would genuinely say I learned a lot about grocery store business operations in the last day, and between that and our trip to the All Day store life, Yeah, I.

00:47:24
Speaker 3: Know more about the grocery book and it was fascinating just to see. I don't want to say little, but these just of subtle, a subtle variety of efficiency movements, like the packeting system, the display cases, the bar codes everywhere that in theory could be replicated by other stores, but like you don't actually see it.

00:47:44
Speaker 2: No, it definitely seems like you have to make a choice, because I would say, like, there's two things. You know, we did that episode on the proliferation of snack foods, right, and one of the trends is we truly live in a Golden Age of variety, right, that's yeah, ob skew. And it's like, you know, we talked about how you know, you can go to a place like, you know, let's there a couple popular Asian grocery stores and see forty five different version of kitkats from Green Tea or whatever, Prong kit Cats. But then also you're like, okay, here is a company that has made a choice to just go in completely the opposite direction. But then you can see it's like, all right, well the consumer really doesn't have as much choice, but if you can get them to mostly what they need, then the price differentials seem pretty genuine and real.

00:48:31
Speaker 3: The other thing I was thinking is it feels to me like technology changes are such are still an understudied area of inflation dynamics. And I mean just the actual barcodes switching from like physical labels to barcodes and maybe now having the tags that uniclow has and things like that. I would love to see more research on that particular area.

00:48:54
Speaker 2: Yeah, I know, that's like the because the original is like menu costs, right, you can't update them men, Yeah, but it's that real.

00:49:00
Speaker 3: Wow, we all order to QR code.

00:49:02
Speaker 2: Yeah, there's been so much change like those some of those first things need to go back and revisit it. But yeah, all all very interesting to me.

00:49:08
Speaker 3: Shall we leave it there?

00:49:09
Speaker 2: Let's leave it there?

00:49:10
Speaker 3: All right? This has been another episode of the Authoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

00:49:15
Speaker 2: And I'm Jill w isn Thal. You can follow me at the Stalwart. Follow our producers Carmen Rodriguez at Carmen armand Dashill Bennett at Dashbot, Kilbrooks at Kilbrooks and Kevin Lozano at Kevin Lloyd Lozano and from Moor odd Loots content go to Bloomberg dot com slash odd Lots. We've a daily newsletter and all of our episodes and you can chat about all these topics twenty four seven in our discord Discord dot gig slash odlines.

00:49:38
Speaker 3: And if you enjoy odd Lots, if you like it when we take field trips to grocery stores in Manhattan, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is Find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening in