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Straight Up Payments

Your one-stop shop for food and beverage B2B payments, news, and trends. Serving up bite-sized chats every other Thursday.

Episode 1

State of the Food and Beverage Industry

Find out what's on the horizon for the food and beverage industry from Matt Gutermuth, industry veteran and CEO of iControl.


 

Straight Up Payments_Episode 1



Transcript

Amanda:

Hi, Matt. Thank you for joining me today to talk about the state of the food and beverage industry.

Matt:

Thank you, Amanda. I appreciate being with you today. Thanks for taking a little bit of time.

Amanda:

Let's jump right in.

Matt:

Awesome.

Amanda:

How has the food and beverage industry changed over the years?

Matt:

What a great question. And oh, my, how it has changed, just in my lifetime. Let's first start talking about the most important aspect of our industry, which is the consumer, because as we all know, the consumer is undefeated. From a consumer perspective, there has been massive change over the last 40-so years.

Think back to 1975, the mid-1970s. The vast majority of food was consumed at home, almost 75%. So 75 cents of every food dollar spent was, for all intents and purposes, at retail, in the grocery store. Fast forward to 2005, and that was 50/50. Half of the food dollar was spent now away from home. Or think restaurants. That was driven by a ton of socioeconomic factors: certainly, more women entering the marketplace; more dual-income households; our children getting busier and busier and busier. Made dinner time a little bit more complicated than it used to be.

That created a significant transition in both the food service and the restaurant space, with the advent of an explosion of new, not only chain restaurants, but local restaurants for people to enjoy. And it also forced retailers to get much, much better at providing restaurant-quality food within their stores, in order to be in the consideration set for this new consumer thinking around what's for dinner.

Now, if we take a look from a pure industry standpoint, I'm going to speak directly to my experience. There have been three major shifts that have occurred in my lifetime, and the most significant of those shifts has been the most recent one, and that shift being technology. But back in the '60s and the early '70s, there was a significant shift into UPCs and scanning. And that capability allowed retailers and suppliers alike to have a ton more data, to be able to understand what was happening in each of their businesses on a much more granular, detailed level. And that kind of gave birth to something called category management, which changed the way suppliers and retailers talked to one another and how decisions were made.

Then the second major shift started to happen in about the mid-'90s, and it's when Walmart decided to get significantly into the food and beverage space. Walmart was born as a general merchandise retailer, and in the late '80s, early '90s, they started experimenting with food. And by the mid-1990s, they were headlong down the path of building super centers all across America. And what happened there, with their everyday low price approach, is it forced a number of other retailers to consolidate. And it drove a series of massive consolidations in major players like Safeway Albertsons, Kroger, Ahold. All had significant consolidation efforts underway in the mid-1990s, which changed the landscape of the industry quite dramatically.

Back in the early days, you could find 50 individual grocery retailers that made up 100% of the ACV, in just the state of Texas alone. By the early 2000s, that number had dwindled to just under 15 that made up the vast majority of the ACV in The United States. So a significant shift, as a result of Walmart entering the marketplace.

Then last but not least: This notion of technology has, in my opinion, been the biggest change of all. In 2007, when Steve Jobs launched the iPhone, it put the power of choice and selection and options in the palm of the consumer, which forced the entire industry, both the restaurateurs and operators and the retailers, to think very, very differently about how they engaged with consumers.

So in my lifetime, I have never seen a change that has occurred in this marketplace that has been bigger than the advent of technology.

Amanda:

The evolution of these changes is much larger than I realized, over the years.

Matt:

It's the wonderful thing about our industry. We interact with people every single solitary day. If you're energized by just humans in general, like I am, you want to work in the food and beverage industry, because everybody eats, and everybody drinks.

Amanda:

Absolutely. Sounds like a fun place to be.

Matt:

It is.

Amanda:

Do you think that that's the end of just-in-time inventory management?

Matt:

Amanda, I actually think it is exactly the opposite of that. Just-in-time inventory management is more important today than it's ever been, and this is why. The margins for a retailer or a restaurant operator are razor, razor thin. And in both instances, inventory makes up a significant piece of their P&L on the expense side. So if you are not managing your inventory day-in and day-out and figuring out ways to be much more effective and efficient with what you buy and how long you hold onto it, you quite frankly are way behind. And ultimately, you will not be able to compete.

Now, let's talk about the expectations from the consumer side of things. Again, going back to that Smartphone, that iPhone that was placed in the palm of our hands back in the late 2000s. The expectations from consumers are also at an all-time high. Think about what Amazon has done to the expectation of the average consumer. We can get you whatever widget you're looking to get. We can have it delivered to your home, in some cases, the same day. In some cases, within the hour. It has created a consumer expectation that has never before been seen to the level that it is today. So if you are a retailer or an operator and are not maniacally focused on managing your inventory to the very, very best of your ability, you're behind.

Amanda:

Okay. Thinking about that cart and all of the different items for Amazon that I'm looking for. My cart, almost always full for different things. So I get, when I walk into that store, for what I'm looking to find.

What's the benefit of reliability over price, when retailers are stocking their shelves?

Matt:

That's a great question. And price has, and always will play a factor in consumer decisions. However, it's not nearly as high as one might think, out of the top 10 things, consumers are focused on and value. Price falls, generally speaking, somewhere in the middle. So it's not nearly as high as a lot of folks think.

I don't like to think just about price, because it's very linear. Price is very black-and-white. I like to think about things, and as a former merchant, I always use the notion of value. And I think value is a better way to think about it, because today's consumers, I believe, are more focused on value than they are just simply about price.

So what other consumer attributes make up value? Well, today, consumers value very highly the notion of convenience. How are you, as either a retailer or an operator or a brand, making my life easier, making my life more enjoyable?

Sustainability is another attribute. People care today, deeply, about sustainability, and will alter their decisions, based on that fact alone. There's also a much greater notion around local. People are more emotionally connected with their local communities today than maybe they ever have been. And being able to provide products that speak to each of these local communities is really, really important.

And then there's dependability. People want what they want. I mentioned high consumer expectations before. People want what they want, and they want what they want when they want it. And oh, by the way, they want to be able to change their mind, and change their mind very, very fluidly.

So all of these attributes are driven by a very different level of consumer expectation that exists today than maybe did 30, 40 years ago. So reliability and value, in my opinion, are much more important to today's consumers than that of price.

Amanda:

Wow, I didn't realize there are so many pieces that go into all of that, when retailers are thinking about what's going to be on the shelf. Looking ahead, are there any popular trends that you think will last beyond the pandemic?

Matt:

I tell you, yes, I do. And I think it's going to be fascinating to watch, over the course of the next 12 to 18 months, to see how many of these new habits that have been created stick. And I think many of them will. We've been mired in this pandemic for, I think, way longer than all of us A, would like to have been. But B, I think we've been involved a lot longer than we initially thought we would, and new habits have formed.

And think about just the mere fact of how many people today are working out of their homes, versus working out of an office. How many children have been forced into homeschooling, versus heading off to school every Monday through Friday, like we've done for years? All of those things have changed our habits. We maybe drive a little less, spend a little less on gas, make a few less stops in a convenience store, maybe think about eating in, versus eating out, differently today than we did pre-pandemic.

But specifically, if you look within our industry, this whole notion of delivery and pickup has absolutely exploded, because of the pandemic. Although delivery and pickup of grocery items and restaurant meals was exploding and was a significant piece of the growth equation, pre-pandemic, because of the pandemic, that grew exponentially: threefold, fivefold, depending on who you talk to and who you believe. So consumers across the board have now experienced the convenience of grocery delivery or grocery pickup or restaurant delivery or restaurant pickup. And for the most part, consumers are enjoying that new service that provides them that level of convenience.

There's a notion out there that has emerged around touchless retail. And you look at what Amazon is doing in some of their Amazon Go outlets, where you can go in and shop, and you never check out. Their system tracks everything that the consumer purchases, and they walk right out the door. They don't have to interact with another individual at the point of purchase, at that cash register. There are many other retailers that are moving to you being able to check out on your cell phone. Again, to avoid that interaction.

And then certainly on the payment side, people are getting out of checks and money orders. They do not want their folks, their teams, to have to interact in collecting cash or checks or money orders, like they have for many, many years. And I think many of these habits are, in fact, going to stay.

Now, that doesn't mean I view the demise of grocery retail in the brick-and-mortar environment. Absolutely not. I just believe it is going to continue to evolve and change, and in order for those trips to continue to be as productive as they've always historically been, retailers and operators alike are going to need to be much more focused on creating an experience that the consumer enjoys and wants to be a part of, versus just the mundane activity of buying widgets off a shelf.

Amanda:

Sounds like technology is there, the core of everything?

Matt:

Yeah, I was going to say, Amanda. Oh, by the way, all of that, to be able to enable that, all of that is powered by technology. Which goes back to my early suggestion: that technology is the biggest disruptor of the food and beverage industry that I will see in my lifetime. It has changed absolutely everything, and operators that are not on the cutting edge of utilizing everything that technology can offer their business, quite frankly, they're behind. And they will not be able to compete in the long run.

Amanda:

It's an exciting time in the industry, it seems like?

Matt:

It absolutely is.

Amanda:

I appreciate you taking the time to chat with me today. Thank you, Matt.

Matt:

Absolutely. Amanda. It's been a pleasure. Thank you for taking the time, as well.

 

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