Welcome to another exciting episode of the Digital Supply Chain podcast, where today we're diving into the world of retail automation with my special guest, Jonathan Morav, Head of Product Strategy at Fabric. In this conversation, we explore the challenges grocers face and how Fabric is revolutionizing the industry with their cutting-edge micro-fulfillment solutions.
In our discussion, Jonathan explains the complexities of the grocery industry, including the unique challenges they face, such as the range of items, perishability, and the need for effective inventory management. We also touch on the importance of understanding the pain points of grocers and how Fabric's approach combines innovative technology with real-world grocery experience.
We delve into the differences between the North American and European markets, and Jonathan shares his insights on key factors retailers should consider when deciding whether to adopt micro-fulfillment and automation technologies. Plus, we discuss the future of Fabric and their plans to further optimize grocers' operations through software solutions and robotic advancements.
Lastly, we explore the potential for achieving margin parity between in-store and digital sales, and the role of ecosystem solutions like autonomous vehicles in optimizing the last mile of delivery. Jonathan also emphasizes the importance of working with a company that truly understands the grocery industry when adopting automation technology.
Don't miss this fascinating conversation with Jonathan Morav, and make sure to check out Fabric's website at www.getfabric.com to learn more about their innovative solutions for the grocery industry.
As always, thanks for tuning in, and if you'd like to see the video version of this podcast, it is available at https://youtu.be/ygtYGwI3fb8.
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So Tom is home placing an order online and somebody else is shopping for you and somebody else now needs to bring you that item. That plus a four or $5 margin very quickly goes to a minus 10 or $20 margin. Hmm. And that's the common theme globally that we're seeing is that the overwhelming majority of grocers are losing a significant amount of money on each digital sale that they make.Tom Raftery:
Good morning, good afternoon, or good evening, wherever you are in the world. This is the Digital Supply Chain podcast, the number one podcast focusing on the digitization of supply chain, and I'm your host, Tom Raftery. Hi everyone. And welcome to episode 308 of the Digital Supply Chain podcast. Back after a short Easter break. My name is Tom Raftery, and I am excited to be here with you again today sharing the latest and greatest insights and trends in supply chain. Before we kick off today's show, I want to take a quick moment to express my sincere gratitude to all of our amazing supporters. Your support has been instrumental in keeping the podcast going and I'm really grateful for each and every one of you. If you're not already a supporter, I'd love to encourage you to consider joining our community of like-minded individuals who are passionate about supply chain. Supporting the podcast is easy and affordable with options starting as low as just three euros or dollars a month. That's a less than the cost of a cup of coffee and your support will make a huge difference in keeping this show going strong. To become a supporter, simply click on the support link in the show notes of this, or every episode of the podcast. Or just visit tiny url.com/d S C pod. Now, without further ado. I'd like to introduce my special guest today, Jonathan. Jonathan. Welcome to the podcast. Would you like to introduce yourself?Jonathan Morav:
Sure. Hi Tom. Thanks for having me. My name's Jonathan Morav, and I currently lead product strategy at a company called Fabric. We're a company that enables grocers and brands to profitably scale up their e-commerce fulfillment operations using our micro fulfillment robotics technology. Pleasure to be here.Tom Raftery:
Thank you. Pleasure to have you. And tell me a little bit about the background to Fabric, Jonathan. Why, why did you guys set it up? What did you think? What, what problem were you trying to solve for people?Jonathan Morav:
So, about seven years ago, we started looking at this problem set specifically around the grocery industry. And when you started to look at the e-commerce penetration rates for the various industries, and segments, you would see, apparel would have 40 or 50% e-commerce penetration, meaning 40 to 50% of apparel sales were online, and electronics were 30%. And then when you got to grocery, it was 2%. And that kind of brought on the question, well, why, why is it only 2%? Why is it not scaling up to, you know, be comparable to other segments, uh, across industries? And when we started to dig into the problem, uh, we started to understand the complexity of the grocery e-commerce fulfillment use case and just how darn hard it was to actually do it in an efficient way, given the complexity of grocery. And we started to think of how you can, uh, tailor fulfillment automation to grocers in a bespoke way that addresses some of the complexities in their industry in ways that had not been done, yet. Uh, because most of the automation technologies that have been built were built around much larger form factor general merchandise, segments, you know, building half a million to million square foot, uh, facilities out of city centers. And that really didn't suit grocers because grocers are hyper-local and hyperdense with very high velocity items. And so they were an underserved segment when it comes to thinking about fulfillment automation. And we started thinking about how can you build a micro fulfillment robotic solution tailored toward the grocery sector to help unlock profitable, efficient e-commerce fulfillment of their digital sales.Tom Raftery:
Okay, cool. And how does your software driven robotic system help retailers address the challenges, you know, of things like labor scarcity or inventory accuracy?Jonathan Morav:
Yep. So, so specifically when you, when you look at the grocery use case, I think all of the themes are accurate. When you look at the Fabric technology, we've built, uh, micro fulfillment goods to person solution, um, that has the ability to be deployed into less than ideal, spaces. And what I mean less than ideal. When you think of your traditional fulfillment landscape, as I said, you're thinking more about that half a million square foot building out of the city center. Mm-hmm. Right? How do you actually design a system that allows you to pull that experience, to pull that operating point closer to a city center, closer in the context of a grocer's back of store operation. And how do you deploy that in, let's say a five or 10 or 15,000 square foot footprint instead of a half a million square foot footprint, but still have the throughput and density that's required to, uh, create the value that the grocer is looking for in their digital operations. So, uh, what we did is we, from a first principles point of view started to kind of break down all the different components of the fulfillment flow. And we started to design a topology that, uh, allows for very dense operations, meaning constrained footprints, but allow high density and high throughput out of those footprints. And so when you look at kind of the Fabric stack, you know, relative to a more traditional fulfillment automation stack, uh, you're looking at the use of vertical space. So the ability to go 40 feet up, right, right. Or even 50 feet up into the air. Right. Uh, so it really allow for density, uh, the ability to remove conveyors from the, from the equation, right? So have entirely goods to person, decoupling the shuttle concept into two distinct robots that allow for the flow of goods throughout the facility in a very efficient way. Uh, and ultimately what that leads to is high density, high throughput, with significantly less labor required to fulfill the orders that are, are, are being processed within that operation.Tom Raftery:
Okay. And so you're, you're, you're basically taking the fulfillment centers, shrinking their floor space, possibly increasing their height so that they can then fit into a smaller floor space within an urban environment?Jonathan Morav:
Exactly. Exactly. And in doing so, you're able to a) from a grocer's perspective, leverage the existing real estate that they already have because they have those big box stores already, right? Uh, you're enabling them to maintain relative proximity to their customers because it's hyper-local, right? Everyone is shopping in their local area, which makes both pickup and last mile delivery much more efficient, both from a customer perspective and from a grocer's perspective. So it allows them to maintain their relative footprint, uh, without additional investment in going out to larger form factors that are further away from their customers.Tom Raftery:
Okay. And does this then enable deliveries to happen at a faster pace? Uh, and sure. And because it's local, it, I'm sure it means we're looking at a lower footprint as well. Right. And when I say footprint, at this point, I'm talking about a, a carbon footprint as opposed to a floor space footprint.Jonathan Morav:
Absolutely. Absolutely. So you're able to shrink the, the time on the road, uh, between the, the grocer's location and the end customer. You're able to offer far more competitive propositions to your customer base, meaning you can have more accurate, faster delivered, fresher, all for a better price relative to what they're doing today, which is basically having people run around grocery stores, pick things off of shelves, uh, in a very inefficient way. And I'm not sure people understand kind of the, your basic, uh, end customer in the grocery space doesn't quite understand the unit economics of that online order. Uh, so it might be helpful to kind of explain that a little bit. So yeah, do that, sir. Please. So, so if, if you take you, Tom, as a, as a customer who typically goes on his weekly grocery run, I do every Monday evening. Every Monday evening, and you have, uh, I'm going to assume, let's say a hundred dollars basket. Uh, okay. Typically, the grocer's going to make anywhere from four to $5 on that basket. Wow. Okay. So very low margin business. Now you layer on online, online fulfillment.Tom Raftery:
Yeah, that's what I was gonna say. Does that four to $5 include delivery?Jonathan Morav:
Uh, no. It, it, it, it doesn't because you, Tom, are going to the supermarket. Ah, selecting your own items and then driving home, afterwards. Okay. Okay. Gotcha. Now, right? Yep. And now when you layer on, uh, online fulfillment on top of that, so Tom is home placing an order online and somebody else is shopping for you and somebody else now needs to bring you that item. That plus a four or $5 margin very quickly goes to a minus 10 or $20 margin. Hmm. And that's the common theme globally that we're seeing is that the overwhelming majority of grocers are losing a significant amount of money on each digital sale that they make. And that's the problem that we're trying to solve.Tom Raftery:
And that's obviously not sustainable. I've been doing that Monday evening grocery shopping, for years online. Now, obviously, I, I'm, I'm guessing I'm not a typical customer in that scenario, or the shop would've gone out of business years ago. So how, how do, how do these retailers, you know, how, how do they keep that up?Jonathan Morav:
So in, in, in, in a world where your online sales were only 2% or 3% of your, of your global sales, the revenue could be seen as additive or incremental and, and, and, and somewhat beneficial. But in a world, as we saw during Covid where your e-commerce penetration is now accelerated, it's a 15% and in some cases 25% of sales. Mm-hmm. That's where we start to see the unit economics of the overall grocery business actually start to break. And so an interesting, example of that is Walmart reported their Q4 earnings a few weeks ago, and it was fascinating because what you saw is 20% year over year increase in their online grocery sales, which is their negative margin business. Oof. And in parallel, because the e the, the global macroeconomic situation is starting to sour, um, they're starting to see less discretionary spending on things like apparel, electronics, and toys and all those other high margin items and the pressure that's putting on their margin in their overall business is actually, you know, upwards of two percentage points Q4 year over year, last year. Uh, and so they're actually starting to see the pressure, the downward margin pressure that they're starting to see on their business model because groceries are continuing to grow in, in market share, specifically online. And when you start to see a deceleration in spending across the other high margin segments, and you happen to have all of those in your In your box, that puts a significant downward pressure on your business model. And it's, it's starting to break really across the board. And so we're seeing now, uh, a situation where grocers are actually starting to get serious about how they streamline their, their digital, grocery operations. Mm-hmm. Uh, and that's where technologies like Fabric and, and other, you know, other players in the space come, come into play.Tom Raftery:
Okay. And just from a practical perspective, can you explain how you are doing away with the shopper running around inside the store, picking out your items for you?Jonathan Morav:
Sure. So let's say you're a typical large box grocer, at least here in the US much larger form factor. You can have anywhere from 50 to 75,000 square feet, and you have a back room that's 10 or 15,000, or even 5,000 square feet. How do you pull the inventory into that back room in an automated way that allows you to handle the digital fulfillment of those online grocery orders associated with that box, um, entirely in the back of the store, right? Yeah. So what we're doing is we're deploying our technology into a back of a store. We are pulling the inventory into digital sales, into that operating point, and we're removing, by and large, I would say, upwards of 85% of fulfillment from the store floor. There'll be always be some items that don't make sense to put in automation or, or oversized items like large packages of toilet paper or things of that sort. And so what we're doing is we're, we're pulling those items into the automation in the back of the store. So again, leveraging the retailers or grocer's existing footprint and, uh, allowing for the fulfillment of those orders to happen in a much more orchestrated, efficient way using automation. In the back area of that location.Tom Raftery:
Okay. Again, using robots andJonathan Morav:
Using robots. Yeah. So what you have is a very dense racking structure, which serves as your stock holding center. And this is kind of where the automation works. And then on the periphery of this, uh, racking structure, you have goods to person interfaces, where you'll have human beings being presented goods by robots for order fulfillment and processing.Tom Raftery:
Okay. And, do you have any kind of case studies or examples of how you, how you've helped retailers scale their operations?Jonathan Morav:
Yeah, we do. So we have a number of live sites. I, I can give you kind of some, interesting data points. So let's take inventory accuracy as I think one of the more fascinating kind of, uh, variables that we can help optimise. So if you look at, let's say US based digital grocery sales in 2022 is about 125 billion dollars in total sales. Okay. Of that, there was a missed opportunity of an additional 30 billion in sales due to very poor inventory visibility and accuracy on the store floor. Okay? Grocers just don't have good accuracy. We have a use case where we're able to take that inventory visibility or that inventory fill rate from about 75% to about 98%, meaning 98% of the time a customer placed an order for an item, they received it. Okay? Now I placed my weekly shop, and I can tell you on a, on a on average, I usually get anywhere from 70 to 80% of my order. The other 20% is either out of stock, or is being substituted by an item that I didn't want. And I'm very specific about, you know, don't substitute, just send me whatever you have. Right? And you could imagine from a customer perspective, that's extremely frustrating. And so I think that's one interesting use case. Uh, another one is really just kind of the, the, the unit per labor hour efficiency that you can actually operate at. So like a really kind of average in-store fulfillment operation will be able to process anywhere from 35 to 50 items per labor hour they deploy in that operation. Using this type of technology, you can get upwards of a hundred or more per hour. So you're looking in order of magnitude of, you know, two or three times the labor efficiency using a technology like this.Tom Raftery:
Okay. And you talk on your site about having a, uh, a form of continuous improvement in your AI systems. Can you talk a little bit about that?Jonathan Morav:
Yeah, sure. So there are the, the, the system is governed by sets of logics that are constantly updating themselves based on machine learning algorithms. And so, you know, not to get too complex about it but, let's say hypothetically, uh, there are sets of items, in the range that the grocer carries, uh, that move faster than other items, right? So you have your slow movers and you have your fast movers. Sure, right? The system will constantly evaluate which of those items are moving faster, and then optimize the storage of those items to be, closer to the stations where, where, uh, you know, pickers are waiting for them. So you can kind of speed up the process of getting those items, for, for order fulfillment. Uh, another example would be, something that's very specific to grocery. You have all sorts of food regulations, right? Allergen risks. How do you build a logic that governs where the goods are stored inside the shelving unit, inside the racking structure to mitigate any risks in terms of allergen spreads? So you don't want to have, say, flour sitting on the top floor because there's a dispersion risk for flour. And it could, it could contaminate other items that are sitting below it. So there are different types of logics that we're using to kind of make this process a more efficient one. And again, it's entirely tailored around kind of the grocery use case.Tom Raftery:
Okay. And is grocery the only segment you're in? Or, because you mentioned apparel and electronics, for example, are you in those areas as well?Jonathan Morav:
We also, we also serve, a number of other segments within the general merchandise category, what we call kind of as a broad umbrella, the general merchandise category. That would be health and beauty and some apparel as well. Uh, but the overwhelming majority of our focus is on the, on the grocery sector.Tom Raftery:
Okay. How do you handle things like the safety and security of your staff as they're working with the robots in, in the center?Jonathan Morav:
Yeah, so there are quite a bit of, you know, safety precautions that we, that we take in order to ensure the safety. The, the automation area itself is fenced off, so there are quite strict rules in terms of the entry into that area where robots are moving and, and active. We have things like estop. So for instance, if you open the, if anyone opens the gate, it actually shuts down the system. Oh, okay. So very, very, very, very strict safety protocols in place. Uh, and then in terms of the actual goods to person element, where, uh, an operator is at, you know, think of it as a, as a station where robots present, totes for, for, for picking items. That station is equipped with a number of sensors. So let's say for instance, uh, an operator's hand is in the shaft of that station, there is a sensor that disables the elevator mechanism. So a robot cannot enter it Okay. And present anything because, because it would, it would potentially, you know, actually, you know, severely hurt the operator's hand, right? As an example. So there, uh, a number of technical, uh, and software driven, uh, safety solutions that we have to ensure the, the safety of the, of the teams that are interfacing with the, with the technology.Tom Raftery:
Cool. Okay. And I guess, there's always the, the factor in all kinds of retail around fluctuations in demand, seasonal peaks, new product launches, things like that. How do you handle those kind of ups and downs in demand?Jonathan Morav:
So the, the, the system's quite, uh, modular. In its ability to handle these peaks and valleys. Okay? And so we, we built the topology in a way. So, so let's take, for example, you've deployed a system, it's been in operation for two years. And you, you, you're, you're expecting your business to grow over the coming year or two, another 10 or 20%, and you need to build additional capacity, right? To, to handle that. Uh, we've built this in a way where you can quite easily add additional robots or add additional aisles to increase the storage and increase the range and increase the throughput of the site. So it's quite modular and it's designed around what we call a peak hour. So when you think of a grocery operation, they're, they're very much those peaks and valleys, uh, in a grocery operation on a weekly basis. For instance, Sundays tend to be the busiest days. Wednesdays tend to be the slowest days, and there's this ebb and flow throughout the week. And so the system is designed around what we call the peak hour capacity, meaning what is the busiest hour a grocer is expecting to have in the context of their operation? And, and we design it around that hour. And then from there it can kind of, uh, you know, work off of that hour and, and, and, and, and handle the full range of, uh, peaks and valleys that, uh, that grocer has.Tom Raftery:
Okay. Okay. And obviously this is helping, as, as we mentioned earlier, uh, reduce the number of people required to be in the, the, in the system, helping get the groceries out. Moving forward though, what role do you see far humans in the future of retail fulfillment given the rise of automation and robotics?Jonathan Morav:
So it's interesting, I think that there's this discussion in the public discourse, uh, of how automation and AI is going to replace people. Mm-hmm. And I actually, I think I see it in a little bit of a different way. The way I look at it is it is filling roles that were other otherwise go unfilled due to the general trend of labor scarcity, which is being driven mostly by the demographics of kind of the population growth or lack of population growth that we're seeing? You know, you know, you see this in Western Europe and we're starting to see early signs of it in the US there are just a lot of people leaving the labor force, right? And so the available pool of people who are looking to work these 10, 15, or $20 an hour jobs is shrinking at a, at a precipitous rate. And, you know, I, I, I believe that in the next five to 10 years, grocers are just going to have a continued hard time filling these roles, which means that they're not going to have to, uh, they're not going to have the manpower they need to offer the propositions they wanna offer to their end customers. And from a, from a business point of view, it's going to manifest itself, in the lack, in the lack of ability to compete against, you know, their competitors in the marketplace. Right. And so, uh, I, I look at it as we are going to be filling roles that would otherwise just remain unfilled. Uh, okay. Just due to the lack of, you know, lack of labor that's, uh, in, in, in, in, in the marketplace right now.Tom Raftery:
Okay. Interesting. And you mentioned the North American versus European markets, do you have customers outside of North America, in Europe and other places, or are you just solely based in North America?Jonathan Morav:
We have customers in North America and Israel today, and we're actively looking at the European market as a, as a market that's ripe for this type of technology. Mainly driven by, uh, the, the confluence of, really poor demographics, coupled with the macroeconomic trends that we're seeing in the cost of labor and cost of real estate and the density that Europe has as a general rule of thumb is really attractive for, for, for a technology like this.Tom Raftery:
Yeah. Cuz I was, that was my next question was what kind of key factors should retailers consider when deciding whether to adopt micro fulfillment and automation technologies like yours?Jonathan Morav:
So what I would recommend, uh, to any grocers, make sure that the, the company that you are working with truly understands the nature of your operations. And I think what we pride ourselves on is while we, we do view ourselves as a technology company that's built robots and software, we've married that with a, with teams of people in our organization who actually come from a grocery background and understand, truly understand the pain points of grocers. And so my, my advice, uh, is make sure that the company that you're working with, truly understands the grocery industry and understands your pain points and is not just looking to sell you robots because we, we are doing much more than just selling robots. We're selling holistic solutions that are designed and geared toward the grocery industry, that were designed around the pain points that, you know, the grocers themselves are, are feeling.Tom Raftery:
Okay. Okay, that makes sense. And where to next for Fabric? I mean, what kind of further solutions do you have in mind? What kind of advances do you see happening for your solution for grocers?Jonathan Morav:
So we're going to continue to build, um, solutions that further optimize, grocers operating points, uh, make those unit economics even more attractive. This is done I think, across a, a number of spectrums. It could be, you know, software solutions that, uh, help optimize inventory management. Help reduce food waste is another really interesting area where I think grocers can use, uh, uh, uh, solutions. Uh, on a robotic side, we'll be introducing, or we actually already have introduced, uh, on a data basis, uh, robotic picking arms. So that will further optimize the fulfillment process where you actually have a robotic picking arm doing the picking instead of a human being. So you can actually continue to, you know, improve the unit, unit economics from that point of view. And then ultimately what we want to do is we want to get a grocer's digital sales, you know, business, uh, at par with their in-store business. Meaning the margin profiles should be the same, right? If their margin profiles 5% in-store, it should be 5% in digital. And when we get to that point, we'll, we'll know that we'll, we'll have really unlocked, what I think is one of the hardest problem sets, uh, currently in retail tech.Tom Raftery:
And is that achievable given that they have to, do the delivery side as well?Jonathan Morav:
Yeah. I, I, I think it is. I think in a proposition where you have a buy online pickup in store, it's definitely achievable. Mm-hmm. Uh, in a proposition where you are delivering to the end customer, there's going to be a reliance on other solutions that help make that last mile process more efficient. And so, we're seeing a lot of heat in the, you know, autonomous vehicle space for last mile deliveries. And, and, and things of that sort. And, and, and, and there's gonna be kind of this ecosystems of, of solutions that, uh, start upstream in the distribution center. Uh, optimize the in-store fulfillment, which is kind of where the space where Fabric is. And then help optimize the last smile, which is where other players are, which, you know, holistically when you stitch all these together a few years down the road. Should make that, uh, ultimately possible.Tom Raftery:
Cool. Interesting. Fascinating. Okay, we're coming towards the end of the podcast now, Jonathan, is there any question that I haven't asked that you wish I had or any aspect of this we haven't touched on that you think it's important for people to think about?Jonathan Morav:
I'll just try to maybe double click on the complexity of the grocery use case, uh, using another kind of angle. Because people might be asking themselves, well, why, why is this just so hard? Mm-hmm. Uh, and it's not just because it's a 4% margin business, it's also the complexity of the range of items that a grocer needs to hold in, in their inventory. So you have frozen items, you have chilled items, you have ambient items, you have items with barcodes, you have items without barcodes. you have loose items and weighted items. You have items that have, one to three day shelf lives. So when you start to think of the complexity of the range of items relative to kind of just clicking a button on amazon.com and getting your box of, shampoo or toilet paper or diapers, uh, which are all relatively handled in a uniform way, right? Right. Uh, somebody picks up the item, they scan the barcode, they put it in a box and they ship it to someone. Grocery is just far more complex. And so I think it's, uh, you know, for, for those of you out there who are placing your orders and wondering why are they always coming short or without the inventory, hopefully this conversation helped kind of clarify some of the complexity that goes into that and some of the problems that these groceries are facing.Tom Raftery:
Okay. Fascinating. Jonathan, if people would like to know more about yourself or Fabric or any of the things we talked about on the podcast today, where would you have me direct them?Jonathan Morav:
Sure it's uh, www.getfabric.com. We have a bunch of media up there so you can take a look at our solution. Uh, look at some of the use cases that we have, uh, and if you have any questions, please feel free to reach out via the contact us button.Tom Raftery:
Super great. Jonathan, it's been really interesting. Thanks a million for coming on the podcast today.Jonathan Morav:
Thanks, Tom. Appreciate it, and I enjoyed it.Tom Raftery:
Okay, we've come to the end of the show. Thanks everyone for listening. If you'd like to know more about digital supply chains, simply drop me an email to TomRaftery@outlook.com If you like the show, please don't forget to click Follow on it in your podcast application of choice to be sure to get new episodes as soon as they're published Also, please don't forget to rate and review the podcast. It really does help new people to find a show. Thanks, catch you all next time