Watch: MODEX 2024 Panel Discussion Replay

Phononic recently participated in a unique panel discussion moderated by Interact Analysis with executives from Cuhaci Peterson, NanoFulfillment at MODEX 2024 in Atlanta, GA.

Session Overview:
Omnichannel grocery is clearly here to stay, but at what steady state and towards what growth trajectory is an area of rigorous debate. Join a panel of industry leaders – leaders in the automation, cooling & refrigeration, store architecture and design and even leading industry analysts – as they discuss the current state of omnichannel fulfillment, reviewing critical lessons learned from the past and, most importantly, how they predict the industry will pivot to address consumer demand over the next 5 to 10 years. Spoiler alert – precise hyperlocal fulfillment will be at the heart of future omnichannel grocery, unlocking savings in space, energy, sustainability and efficiency by right-sizing investments to maximize ROI.

Key Takeaways:

1. Hyperlocal, tri-temperature fulfillment will be at the heart of future omnichannel grocery – delivering tangible business savings and ROI while simultaneously improving end customer satisfaction. Flexible storage, demand-based energy savings, sustainability and the ability to scale and grow in precise alignment with market demand, and not before.
2. Such powerful automation strategies not only right-size investment, but empower grocers to proactively address impending labor, sustainability, retail theft and space challenges in 2024 and beyond.

Watch the panel discussion or read the transcript below! For more information on the session and participants, please visit: phononic.com/modex2024

Full transcript:

[Dana Krug]
I am the Senior Vice President of Cold Chain for Phononic. I’ve got about 15 to 20 years in automated retail, and most recently in the last five years in cold chain fulfillment, specifically into solid state cooling or semiconductor cooling, kind of moving away from compressors into the future.

[Francisco Serrano]
Francisco Serrano, I’m the CEO of NanoFulfillment. So I’ve got about almost 40 years in automation, material handling, and looking forward to this speak.

[Steven Duffy]
Good afternoon, Steven Duffy. I’m the Senior Vice President of Design with Cuhaci Peterson. Our firm has a long history in retail and grocery, dating back to 78.

I’ve been in the industry as a retailer and grocer for almost 35 years, and kind of came back into the design realm with the last almost 10 years with Cuhaci Peterson. So looking forward to an exciting topic.

[Rueben Scriven]
Thank you very much. So we’re gonna kick things off with Dana just giving a very quick background to online grocery and where it’s come from to where it is now. Dana, do you wanna spend sort of three or four minutes just summarizing some of the latest trends?

[Dana Krug]
Yeah, I’d say this is a little bit of going down memory lane for a lot of you guys. So if you start looking at the numbers, the U.S. Census Bureau basically said that the growth that we’re having and the growth that we got through the pandemic obviously was something that everybody here has experienced, but it looked like it was going to sustain over the long haul. So they said, you’re gonna see a bump of revenue in that space that in digital and online grocery, that’s gonna move to about $250 million or $250 billion a year through 2026.

They also said through different firms like Mercatus and Click Meets Brick, they said that we’ll see about a three times increase in the growth rate coming from online than what you’ll see inside the stores. So you start looking at these numbers, they’re pretty daunting, and you start to understand why some of the decisions that were made over the last several years happened and kind of where things are at today. You couple that up with what the consumers were saying when they were asked, would you continue the same trend?

Would you continue to use the online, would you continue to do the curbside pickup? And the answer was overwhelmingly yes. As a matter of fact, it was yes and we think it’ll accelerate.

So when you start to look at that in the history that we’ve gone through, the accelerated growth rate that we’ve gone through, and then you look at the retailers who were both omni-channel and non-omni-channel, they both looked at the numbers and said, we have to be able to compete in this arena. The times were changing, they’re accelerating, the growth is there. They all put a lot of money into investment into this area to become very efficient and effective in grabbing market share.

Some have done a really good job and have picked up market share. Others are a little bit growth challenged, but know that they have to get more efficient in this area. And that kind of brings us to where we’re at today in what we’re talking about.

[Rueben Scriven]
Thank you very much, David. So we’re obviously seeing a lot of growth in online grocery, but really we’ve seen a pretty big lack of investment in it, at least in the last year or so. Specifically around micro-performance, which was originally touted as a very strong, fast-growing segment, but there’s been several challenges that have plagued the industry and led to somewhat of a slower growth than many would have expected.

So as part of our research, we’re really trying to understand what’s led to this slower growth than expected. And our research really points towards two main reasons, both of which have a lot of sub-components which we’ll explore as part of this discussion. The first part is really around macro-economic environment, you know, higher interest rates, slower consumer demand for online grocery, at least in the last year or so, relative to the highs of the pandemic.

That’s had a big impact on grocers’ willingness to spend on automation. But I think probably a more pertinent reason is lower-than-expected ROIs for automation. And we’ll be exploring this in more detail because there’s several ways that grocers can account for this and change their strategy to benefit or improve those ROIs.

And the lower-than-expected ROI can really be summarized into three main categories, really driven by, the first is inefficiencies associated with the consolidation of manually picked and automated picked items. So in an automated NFC environment, some of the items are picked from the store, other items are picked from the NFC. And the meshing together of these items has proven to be more inefficient than people once thought, resulting in the overall system having a lower throughput than people originally thought based on the original plans and ideas.

The second was around the fulfillment processes in general. So initially, when grocers started to invest in high-performance centers, they were, in many cases, running for the good war. They were trying to increase their fulfillment rates without necessarily seeing what they could do manually.

And by improving their manual pick rates by tightening up their fulfillment processes and investing more in manual-fulfilling software, they were able to increase their manual operations. If you increase the throughput of manual operations, it lowers the ROI associated with automation. And the third is around replenishment.

So in many cases, grocers tried to replenish NFCs as if they were shelves in a store. And that doesn’t work. There needs to be an improved way of replenishing NFCs, either by loading totes on-screen or trying to find a way where you don’t necessarily have to manually code in all the expiration dates into the NFC.

There are several documents associated with replenishment that grocers need to solve. So that kind of takes us to today, where over the last couple of years, we’ve seen slower growth than anticipated, but it gives us a roadmap to help alleviate some of those issues associated with the ROI. So with that kind of context in mind, I’ll start with Francisco.

Are you able to kind of summarize what the main sort of approaches have been for replenishment of NFCs, what are the sort of use cases, and what are the most prevalent use cases today for replenishment of NFCs?

[Francisco Serrano]
Thanks. So one of the standard ways of replenishment, right, is through a decanting process. So what is that?

In the cases in of the merchandise you have of the food, and you’re taking them out of the box, you’re putting them in a tote, and you’re carrying them to the tote itself. So in a centralized platform, that’s how you’re doing it. And then from the tote, you’re able to pick and do your orders.

In a decentralized manner, so in other words, when you’re doing more of a hub and spoke type of methodology, you’re going to want to get your items, again, into the tote, so decant once more, but then take those totes and then bring them into your NanoFulfillment center or your micro-fulfillment center.

[Rueben Scriven]
Awesome, thank you very much. So in summary, what you’re doing there is you’re essentially doing two steps. You’re kind of bringing them into more of a centralized area where maybe that can be used for fulfillment, but it’s also then used to replenish smaller facilities around that hub, is that correct?

[Francisco Serrano]
That’s it, that’s it, yeah.

[Rueben Scriven]
Awesome, thank you. And David, when it comes to kind of fulfilling refrigerated and frozen items, what are the sort of challenges associated with that? What are some of the solutions there?

[Dana Krug]
Yeah, some of the challenges are you’re trying to take a three temperature zone that you’re trying to operate something where you’re constantly, and you kind of refer to it, is you’re having to consolidate or separate on a constant basis. You’re putting walls between all of your processes, right? So the big problem with that is if I told you guys today to go build a fulfillment system and it was all one temperature, you would build it differently than you would if you had to do it in three different temperature zones.

In addition to that, you’ve got to worry about cold chain documentation in each one of the temperature zones and that’s not just in the decanting side or the picking side, but now you have to worry about it in the areas of the consolidation, the staging of the orders. Now you’ve got to worry about getting it out to the curb or between the MFC and the closer to the customer would be the store. Or it might even be delivery, but you’re having to recreate temperature zones in a safe environment and keep the quality of the food throughout that entire process.

And the challenge has really been you’re having to recreate everything from scratch in four or five different areas in order to be able to do the fulfillment. It’s written with inefficiencies as you do it.

[Steven Duffy]
Yeah, if I can just tag on to what Dana was saying. So based on our experience working with different ASRS companies within the last couple of years, a lot of the legacy systems are extremely challenged in the frozen environment, specifically related around robotics. And so our firsthand experience with doors opening in enclosed areas, having freezing, there are many examples out there in the industry and I won’t name names that have had failure to launch because just the simple elements of working in the cold environment, frozen environment, have failed.

[Dana Krug
Yeah, and just adding on to that a little bit more, very specifically it’s the frozen environment that is the most challenged. So what ends up happening is you don’t want to run your automation system in a frozen environment because your downtime is five times as what we’re hearing as you would have in a refrigerated environment. So what ends up inevitable to be happening is you pull that out of your automation system, you put it into reach-ins or walk-ins, and then you’ve just created yourself another consolidation point.

So it’s pretty complex, especially when you put three temperature zones in.

[Rueben Scriven]
What’s the most common approach you mentioned a couple of questions?

[Dana Krug]
Most common would be that you’re putting it into reach-ins. You’re taking your frozen completely out of the automation system and you’re placing it into a manual process. And then that kind of goes back to your point where the ROI starts to degrade pretty quickly because your units picked per labor hour start to drop dramatically because you’re literally marrying now a manual solution in an automated facility.

Yeah, when we talk to customers, it’s really what I just referred to. If you were to go build your automation system with the single temperature zone, what would be the way that you would do it? What’s the most efficient way that you can move goods and do the fulfillment process?

So when you’re looking at somebody like Phononic, we’re saying get rid of all the walls, get rid of all the different temperature zones, let the tote actually be the active cooling or freezing mechanism. And then what it also does for you and where we’re seeing some really good benefit is your consolidation and your staging of all of your order, frozen, refrigerated and ambient becomes in the exact same location. So we see a very odd thing that happens especially when you start to get out of MFCs into the stores is they pick all of the groceries, then they go to the back room and they separate all of the groceries into three different zones.

And then when the customer comes, they put it all back together again and then they bring it out to the customer. So there’s just a lot of steps that are there that could be eliminated. Yeah, so on the delivery side, we see the same thing.

So it’s actually even more of a challenge because now that you’re moving to electric vehicles, it becomes more complex because you don’t wanna tax the electric vehicle. The range is already limited pretty heavily on electric vehicles today. So the ability to do a reefer electric vehicle really is not there because it just kills the range.

So what ends up happening today is they’re actually limiting the cube out of a van based off of their cooling capacity to be able to actually deliver the order. So even though they may have density out in the market, they actually reduce that density because they can’t go out farther. So we see the same thing when they’re staging the truck.

If they do have refrigeration, they’ll, again, put the refrigerated area in one area of the truck, they’ll put the freezer in another area, in the ambient another, and then they’ve gotta consolidate. If they don’t do that, they use passive cooling, which is a problem when you start to get farther out again. Can you just define passive cooling?

Yeah, so passive cooling would be, so when we look at active cooling, it’s a system that is actively cooling, just like your refrigerator at home is actively cooling your food. Passive cooling is literally taking gel packs and dry ice and placing it in a tube to try to keep it cold. The problem is that you don’t have good control of that temperature.

How fast does it melt? What’s the actual temperature? And then there’s the reuse of those, and recharging of those.

So you start to lose longevity in these deliveries, and it becomes very labor-intensive. Interesting.

[Rueben Scriven]
Francisco, a question to you, and this isn’t necessarily one that we’ve spoken about before, but. Are you seeing that corrosives are not necessarily the standard? Are they starting to use them?

Are you seeing that there’s corrosives, or is there still a fair amount of way to go toward, of improvement left?

[Steven Duffy]
That’s a great question. I think there’s clearly a new, renewed view, and a more realistic view of what’s going on. I was gonna touch on this a little bit later.

I think, essentially, what’s happened is that we’ve lived quite a dynamic last four years, quite a rush towards automating without being able to really pull it off, with the expectation of really higher volumes that really haven’t occurred at this moment. That’s not to say it’s not gonna be happening. It will be happening in the future.

It’s a question of when, and it’s also a question of the correct application form factor. Every retailer or grocer is going to have a different need for their store chain, their portfolio. Some locations hire lower volumes, so it’s a complicated question, but I think we are, there are so many different form factors and technologies out that are gonna be correctly right-sized.

The path forward, we’ve gone through, I think, sort of the heavy learning curve, to answer your question in a simple way.

[Francisco Serrano]
Well, I’ll add to that that with the experience that’s happened over the several years of trying to use existing technologies to answer the question of forward-deploying your inventory closer to the consumer, there’s been a lot of learning happening there when we’re using materials and approaches that we had in the past for a new problem, instead of looking at the problem for what it is and its uniqueness, and then coming up with the solution for that. So I’m getting requests in for other approaches which we’ve generated so that we can provide that type of automation, as well as try to step away from the model of using 3PL labor to satisfy those orders, even from within the store, creating a different type of customer experience.

Mostly one that the grocers themselves are saying they don’t want.

[Rueben Scriven]
So you seem like a certain level of right-sizing. When you say right-sizing, do you mean kind of more of a smaller automated system, whether it’s kind of kind of from a CVG, whatever it might be? Is there a shift now towards more of the smaller systems that you’re seeing?

[Francisco Serrano]
I see it coming down to something smaller, something more direct and immediate, but I’m also seeing that there’s a big drive of having more control over the customer experience that is a direct driver of consumer loyalty. So when they’re proposing a solution, they’re also taking a look at the whole picture of what is our brand and what does it mean for our customers to come to us. It’s not just the efficiencies and the quickness, it’s the experience, the total experience itself.

[Rueben Scriven]
Yeah, that makes sense. And that kind of aligns with our research. I think what we’re seeing is that there’s a bit of a bifurcation of fulfillment models.

On one hand, you’re seeing the weekly shop orders, which are getting bigger, and the fulfillment of this has to be in quite a big centralized facility, not necessarily the large CFCs, but more of maybe 50 to 100,000 square feet. And then the convenience orders are getting shorter and shorter and shorter and kind of bifurcating in that sort of sense. So we’ve spoken a lot about the client.

So pivoting slightly towards the stores themselves, Stephen, being an architectural firm, you have a pretty good knowledge of how stores are changing over time. How are you kind of seeing them adapt over time in response to the growing demands of online growth?

[Steven Duffy]
Yeah, so I’m going to touch on the slide that’s on the screen right now. This is going to sort of lead into what we’ve been up to, but really the future, as we’ve touched on this, you’re probably going to hear this phrase many times, the future, it’s not one size fits all. This is just showing a simple continuum, if you will, of automation, from really going in-store, manual pick, to the applications with Wear Room, dark stores, micro-fulfillment, and then we think sort of the current phase of the evolution for the future is at the nano level, which is really hyper-local.

It’s getting close into the product. There are many, all the big names out there, big retailers, food grocers, are gravitating to getting closer to the consumer and being able to leverage localized fulfillment through the use of existing real estate. So that is a very, very strong trend.

[Rueben Scriven]
Yeah.

[Steven Duffy]
Yeah, so the grocers, convenience, we speak about convenience as a state, convenience only continues to increase consumers, but consumers are fickle. They also be able to want value in the marketplace. So that is the struggle, that the leveraging of these technologies to be able to bring in fulfillment at a lower level and also deliver on convenience is key.

Leveraging that close-in real estate is going to be part of the answer to delivering on the convenience.

[Rueben Scriven]
And in terms of the stores, I mean, when you talk about the store itself, do you think that’s going to be limited at least in the moment in that automation?

[Steven Duffy]
You’re setting up some of our future slides, so if we advance some of the next slides, I’m not sure which number this is, but we see the bridge, Ruben, between physical and online. I mean, that is clear of the future. There, we really are almost there, and that’s one of the things that our firm is focused on, is the bridge between the online and the physical store and marrying that so that that experience is seamless.

Then, and that is the aspiration for grocers. I mean, I think you’re leading into sort of the next question.

[Steven Duffy]
Well, back in, actually here, let me answer that question in a second, just to answer, just to sort of illustrate. So across the various verticals, our firm has done design explorations within retail, grocery. This slide will help kind of lead into the next one, but to answer your question specifically.

The top center one is an application that anticipates a significant part of the store being replaced by ASRS. We have another version of convenience, which actually marries ASRS to prepared foods. And fulfillment hubs are definitely a key element used, as you touched on, almost based on CFCs.

We have examples of localized fulfillment through the use of nano. Hybrid markets are one of the ones that we also touched on, that you touched on, as being a close-in application. The one on the bottom left corner shows a convenience market that you can actually drive into, have your order fulfilled.

As soon as you drive up with a beacon, it’s ready to be picked up and loaded in your trunk. And then, of course, the hyperlocal examples on the bottom right corners. Yeah.

[Steven Duffy]
These are concept designs, but these are designs that various clients came to us to help develop and advance and explore. If you advance to the next slide. This is a hybrid market, and then we have another one after that, too.

But essentially, this represents taking a fresh market, if you will, for produce, and marrying it to a dark store with a warehouse. So it’s a modular concept so that you enhance the shopping experience, you have the fulfillment hub, whatever size, whatever format, whatever system you’re using, co-joined with it. It’s natural for retailers, because you’ll have a market, and you’ll have maybe existent, vacant space adjacent to that which you can leverage.

The next slide, you advance it. I think we’re at sequence here. But we have another concept that, again, it’s not illustrated on screen, I’m sure we’re gonna come to it, that represents, as I said, we developed it in 2019.

You take the center of store out, you replace it with an ASRS. And the significance of that is, most grocers have a perishable perimeter. Consumers want to come to shop the market to be able to have that fresh experience.

So what you do by taking the center of store out, you eliminate that part of the shop that’s not convenient for the consumer, not appealing, and then you enhance the experience by the perishable perimeter. So we’re gonna refer to that as the end state. Ultimately, grocers are looking for that store of the future.

But to answer you directly, it’s a longer timeline. We’re probably looking at five years to 10 years until you ultimately have most of the center of store replaced. We do believe that today, with that renewed understanding of where things are, right-sizing the automation for the future, that the current form factor, using something like a NanoFulfillment with the active cooling localized refrigeration totes that can handle the tri-temperature is an optimum solution for a lot of grocers today because the form factor, and you do have it represented here, if you look in the top right corner, you can see multiple NanoFulfillment modules can easily be put within a store.

The other thing that wasn’t really explained or brought to full understanding is that many of the legacy ASRS systems are extremely costly, very difficult to deploy in relation to fire protection requirements, electrical. There’s also significant structural requirements. Many of these legacy systems require improved slabs.

There’s specific fire separation requirements for them, and they become cumbersome. By going to more nimble, modular, and almost plug-and-play systems, it really becomes, if you will, a bridge for the future for implementing these systems today until you really see more of an ultimate deployment of the larger ASRS as volumes continue to increase into the future.

[Rueben Scriven]
And in terms of the kind of tri-temperature, what do you see in a part of this?

[Dana Krug]
Yeah, I mean, the beauty of the system is it’s modular, right, so it’s a contained tote system that gives you the ability to do freezing or refrigeration anywhere you’re at. So, you know, interaction with a nano system is very simple, and to Stephen’s point, your speed to market is increased dramatically. So if you can drop in a system like nano, you don’t have to build out a freezer room, you don’t have to build out a refrigeration room to be able to do this.

You have the ability to reconfigure your store quicker without having to go through all the piping and upfitting. So it fits in very well from that perspective, partly because we can start at any level, small or large, and then scale up as needed and reuse the asset.

[Rueben Scriven]
That makes sense. And you’re probably going to bring a soldier in the past, but we are starting to see a trip up again, and particularly in Europe, a separate kind of business. This really is focused, they’re into selling a separate company to each other.

We are starting to see a trip up again, particularly in Europe, I think Tesco is a great example because they have a limited assortment of separate kind of business units, which, and this really is focused on rapid and reusing their full format stores in the UK, as many stores in the UK do, and they’re able to, you know, add a much, much more attractive, not necessarily a separate company for them, like maybe Google, but it’s actually the incumbent. I guess, Francisco, do you see this kind of working in the US, where, you know, Grocer might have a kind of separate, limited assortment of rates specific to rapid delivery, or do you think that, you know, what Grocer’s in the US are offering is just pure kind of, you know, large-scale offering, irrespective of the UK?

[Francisco Serrano]
No, I mean, from what’s coming across onto me is the fact that there’s like two types of shopping, you know, so there’s the quick, you know, convenience, we have 87 SKUs, supposedly, that we order all the time, every week, and that kind of thing, so that we want a solution for that, but then we have the more I purchase every month, I do every two weeks, and there’s that system there, so for, to go to a smaller footprint, you need to be, you need to have that versatility, you need to have, you know, that portability, you know, that, and that ability to, you know, be able to scale up, scale down, and so that’s what I’m seeing, but I think…

[Steven Duffy]
We definitely see, Ruben, you know, the increased drive towards, especially in the urban markets, towards being able to deliver on the convenience, you know, we just were recently in New York together, and there’s so many applications for it to be able to just simply drop in a nano-fulfillment module into a, slide it into an urban environment, the density, and also just getting around the city, and the necessity to be able to have the product within a few blocks, to be able to deliver within that sub-hour desire to get your product, as convenience, again, continues to be a driver here, it seems very clear to us.

[Rueben Scriven]
I think one thing that we’ve noticed in our research is that delivery slots are priced as such, so you can get a delivery slot for a cheap rate to the US, based on our trade agreement, to expect rapid deliveries. Grocers have said we don’t price their items, so, you know, it’s going to be a cheaper delivery slot if you have a delivery slot two or three days out, and that kind of leads them to this idea more of centralizing the product. The issue that we’ve seen is that most grocers have incentivized online grocery sales through a subscription, where they basically say, you know, you get free filaments, and you don’t want to do a Netflix and say, you know, you have to pay more, you know, the rapid delivery.

So, in a way, by trying to incentivize consumers to purchase online and offering these subscription programs, they’ve kind of shot themselves in the foot, in the sense that they kind of find it very challenging to say, you know, please deliver the order in two or three days instead of the same day, the next day, if we offer it. So, you know, to what extent do you think grocers will be able to push out that delivery slots?

[Steven Duffy]
Well, actually, I’m going to turn, I’m going to speak directly to that. So, specifically with, well, let’s name three, Walmart, Target, and even Kroger, with the subscription models, the advantage with Walmart and Target, they have the real estate. Walmart has over 4,000 units in the U.S. Target, I don’t know the current count, but they have the real estate. So, that is the value to actually be able to leverage the real estate to be able to deliver on the subscription model and the promise they have within the time frames to deliver the convenience, which is the training of the customer to do.

[Rueben Scriven]
So, do you think it’s going to be, you know, in the U.S., the majority of online groceries are delivered the same day or the next day? Do you think it’s going to be difficult? And I guess, do they welcome positive delivery slots in the U.S.? On my end, I’m going to push this back to you.

[Francisco Serrano]
I mean, when it comes to you and what you’re getting on. So, on my end, you know, what I’m getting is I need this kind of service. I need this kind of capability.

You know, so I need to be able to get those convenience items to my customer immediately, right? But not the others. But you.

[Rueben Scriven]
Yeah, it’s. I’ll drop the name Amazon. Amazon continues to drive towards wanting to have, continue to elevate the bar.

I mean, they have been, you know, the 800-pound gorilla, you know, in the background. And everybody’s been gravitating towards it. So, with the new level setting, you know, again, it’s going to be that continued march.

It’s really just a question of when, not if. I think that’s maybe a better way to place it.

[Rueben Scriven]
So, I mean, if we’re saying in Europe where you might have slightly longer leads than in the U.S. where you have more subscription markets. But assuming that the bulk of orders come the same day, next day, they’re associated with sort of tri-temperature.

[Dana Krug]
Yeah, when you’re getting to hyperlocal, the challenges you start to run into is space. There’s not a lot of space that is built in most stores. They were never built to be fulfillment centers.

That was not their intent when they were actually put up. So, one of the problems that they’re going to have is how do you deal with the tri-temperature cooling in a back room that really wasn’t meant for it. The other really is when you’re talking about same-day delivery or at least next-day delivery, is you’ve got a problem with being able to get enough orders for density to make it profitable.

So, you have to have enough orders going out on a truck to make it profitable. One of the things that some of the providers that have kind of put into the market, the gig economy is great, but one of the problems is that it’s a one-for-one delivery. So, if you ever built a model and you had some density, you would never go to a one-for-one delivery.

It would just be too expensive. So, go ahead.

[Rueben Scriven]
I was going to say to your point that the economy is interesting because I guess no average person is going to have a freezer in their truck.

[Dana Krug]
Right. So, which brings me to the other, which we talked a little bit about, is the brand of the retailer is now becoming in jeopardy. So, if my ice cream arrives and it’s soup, right, I will blame the retailer.

I’m not blaming the gig driver for my – because I can’t reach out to the gig driver and say, you know, Jeff didn’t get my ice cream cold because he left it in his trunk, right, and it was 100 degrees outside. So, not just food safety, which is obviously a big concern, but food quality is going to become a concern, especially for the retailers in protecting their brand.

[Francisco Serrano]
So, the way I look at hyperlocal is basically sub-hour delivery. So, when you’re within a city, you know, that could be 15 blocks. You’re out in the suburbs, that could be five miles, but it’s more about the delivery time in my mind on that.

[Rueben Scriven]
Hello.

[Speaker 7]
Thanks. Great presentation. Thank you.

My question is, I understand retailers are looking at automation in a store to be more efficient, more productive, reduce cost per pick unit. Ultimately, that’s why we look at automation to be more profitable, but how important right here, how important is the experience, the customer experience? It’s probably hard to put a dollar value on that, but how do you think retailers are looking at really taking the customer experience as a value add into consideration with some of these in-store technologies?

[Steven Duffy]
Yeah, customer experience is critical. Losing a customer, I don’t recall the current numbers, but the significant impact of not only the customer being disappointed, but all the customer’s friends and family are going to know that the customer is disappointed. The economic impact is significant to having a bad experience fulfilling.

So, it’s super critical that the order accuracy is spot on. That’s one of the great benefits of ASRS, assuring that what is to be delivered to the customer is the product. You have full visibility of chain title of the product being delivered.

[Speaker 6]
Yeah, going back to what we were discussing here at the end about potentially training the American consumer to wait for longer wait times, thinking about consumer experience and going to the business case, is a trade-off truly between rapid delivery and delivery later? Or would you expect to start shedding consumers to things like restaurant food delivery versus rapid delivery? Where’s the actual competition there?

Or I guess my question is, from a business perspective, is it even viable to push out that delivery window before you even start thinking about the logistics of it?

[Steven Duffy]
The nuance of your question also about prepared foods is exactly what Ruben said. They need to be delivered immediately. Food quality, especially prepared food, is very perishable.

So that is sort of a speed and convenience are tied together. You make the order, it’s got to be delivered.

[Rueben Scriven]
Yeah, thank you.

[Dana Krug]
Just real quick on that. I’m sure everybody’s seen this. Amazon is testing, charging more for delivery, right?

So do you want it in two hours? It’s this. If you want it in four, it’s this.

If you want it in a day, but if you’ll consolidate your entire order to Thursday, then I’ll drop it by this. So there is a little bit of testing from an elasticity perspective. And I think that the retailers can be doing the same thing.

[Rueben Scriven]
It’s probably less elasticity. Yeah, thanks for the perspectives.

[Speaker 8]
So you talked a lot about incumbent retailers and how they’d have to retrofit an existing store retail space, whether it’s large or small. Do you see this possibly being ripe for disruption by startups instead who deploy a micro-fulfillment center? They’re not a name brand.

They’re not a Walmart target. But they’re starting this from scratch with a solution that they built from the ground up and then, therefore, known for that instead of having to move into that space from an encumbrance. Thanks.

[Francisco Serrano]
Thanks. So in the part of the question that you had there, for a company that’s not the big three into a market, the flexibility of the design of automation is what you need to find. So something that’s scalable, especially if it’s portable.

So while you’re testing markets, losing the asset behind, as most other automations are, once you build it, you have to leave it. So getting something that’s portable and scalable is a key factor. So even in identifying new markets that you may not even have a brick-and-mortar store in, that you can go ahead and satisfy e-comm orders by placing your order fulfillment automation into a space that is available for rent, like an abandoned restaurant or an open office or something like that.

It gives you that kind of flexibility as well.

[Steven Duffy]
Yeah, just to tack on, part of your question was do startups have a more inherent advantage over incumbents. The answer, in our experience, is yes because it’s designed from the start. However, with the flexibility of an application like a nano-fulfillment, it’s easily adaptable where you do not have, with the legacy ASR systems, really the flexibility to be able to conveniently deploy them.

So there is a distinct advantage to being able to have small, nimble, and modular applications. Again, the caveat back, real estate is always a challenge within an existing facility to be able to implement it. So the inherent benefit is to a startup from day one.

[Rueben Scriven]
Thank you.

[Speaker 5]
Hi, Keisha Hall, Prince William County Economic Development. We’re a northern Virginia suburb. And we proactively recently updated our zoning ordinance to allow for uses like this in response to COVID.

We were worried about the big box retailers, our grocery stores, not having the legal ability to perform this. And so I’m curious. So I’m surprised.

I’m actually pleased to hear that it’s just taking a little bit longer for the market to kind of transition into this type of use. But I’m wondering about the practicality of this in a suburban community. You’ve made a couple of references to more denser communities, but the needs are still the same.

Residents in the suburbs still want their groceries just as quick as someone in our more urban centers. So I’m curious to hear about your perspective in that regard.

[Steven Duffy]
All right. I’m going to take this one because I love it. We think this application is actually ideally suited even for a food desert, if you really think about it.

So I’m going to take it to the far end of the extreme. So the application is modular. You can almost put it anywhere.

And the beauty of the tri-temperature solution is you can provide healthy, balanced food at all temperatures. So it’s ideally suited to be able to plug in. What we were really talking about is the big picture is that the larger legacy systems weren’t able to deliver on the promise that they had really at the beginning of COVID.

And many of the grocers were just challenged with all the technical issues. The extreme cost to be able to put it in. That’s what’s so exciting about being much more nimble.

There are a lot of technologies out there today that really have evolved over the last year or two that we’re seeing that are new from 20 that are continuing to expand the horizons and the capabilities to be able to deliver this kind of service.

[Rueben Scriven]
Just a comment as well on exactly what Stephen said. I think what grocers have realized in the first pandemic is that the grocery store can be a part of the community if you have more of these value-added services around, such as coffee shops, such as pharmacies, whatever it might be. We saw that if you’re just in the dark store model, many cities in New York and perhaps down in Europe, they’re regulating on just having a dark store where it’s only used for micro-applications.

So I think really a lot of the fulfillment will happen in the store with these value-added services around that can really draw the community, especially in the suburbs, to the store and really have that as a focal point of both fulfillment as well as community. Great. I think one more question.

[Speaker 9]
Hi there. Quick question. When you guys mentioned scalable and flexible, can you go into more detail about how the assets can really be redeployed?

Because I think what you guys were trying to strike a tone for was automation traditionally has been more of a monument, but it seems like with what these companies do on the panel here that there’s more than just flexibility. It seems like these assets are really able to be utilized in different parts of the operation. So just wondering if you could expand on that.

[Francisco Serrano]
Yeah, thanks. So the redeployment of this asset, it basically means that you can take it apart like Legos, pick it up with a forklift, put it on a truck, and then ship it 500 miles away and then set it up and do all of that in a period of five days. So that kind of is what we call about portability and being able to redeploy an asset.

So the current solutions that you’ve seen, they’re not able to do that. So once you build it, you have to turn around and basically depreciate it down to the scrap metal cost of it. Meanwhile, with this other one, now you have an asset that you can reuse and reuse and reuse as you need to see fit, and then it still becomes a value on your balance sheet as well.

[Rueben Scriven]
Amazing. Well, we’ll finish up there. Thank you very much for coming, everyone.

[Francisco Serrano]
Thank you.