Guest: Doug Munson
Topics: Creditntell, grocery stores, grocery-anchored centers

Transcript: 

Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management. Welcome to Retail Retold everyone. Today I’m joined by Doug Munson. Doug is the Head of Advisory Services at Creditntell. He is the founder and former principal of MTN Retail Advisors. Happy to have him here. Welcome to the show, Doug.

Doug Munson 0:39
Thanks, Chris. Happy to join you.

Ressa 0:43
So tell us a little bit about you where you are and who you are and where you’re from.

Munson 0:51
Well, great. Well, thank you. I appreciate the opportunity. Well, I’m probably first and foremost on this podcast defined by my retail background. I like to think I have some other diverse, you know, interest out there but I’ve spent 38 years now this month in in the grocery retail sector, started out in the operational side and worked my way up through the end of the operation was a produce manager for about nine years and then happened to have an opportunity to grow into the real estate side of this at Smith Food Drug centers.

Now part of Kroger, but, you know, we been based out of Salt Lake City prior to the acquisition with credit Intel and but John Tippet’s in myself the principles of MTN, we’ve, for some reason we’ve gravitated down to Southern Utah. So that’s where I live now is in St. George, Utah, about 80 miles north of Las Vegas.

Ressa 2:02
Very cool. Very cool. So will you be at the ICSC show, the convention in Las Vegas?

Munson 2:10
Oh, yeah. There with all the speed dating?

Ressa 2:13
Well, given you’re 80 miles away, is that a, is that a stay overnight? Or you go home sleep in your own bed?

Munson 2:19
No, I think I’m going to stay overnight. Those are long days. You know, Chris, so I’ll, I’ll stay overnight and take advantage of being there on site.

Ressa 2:27
Got it. So 38 years in the business. So you’re a rookie? Okay.

Munson 2:33
Yeah, exactly. Yep. Still learning every day.

Ressa 2:37
So you went from being on the grocery side? And then after you’re on the grocery side, you are on the landlord side for a bit. Right.

Munson 2:47
Yeah. For short stint with? That’s exactly right. With Phillips Edison. Correct.

Ressa 2:51
And then after you left the landlord side, you started Mtn?

Munson 2:55
That’s correct.

Ressa 2:57
So tell us about a couple things. One, tell us what made you think about being an entrepreneur and starting your own business? And then tell us how this concept of what MTN was and still is today? And then how that concept evolved? What made you think that that was a great idea?

Munson 3:19
Yeah, well, look, you know, I think what’s interesting about my, you know, my career path is, you know, having, again, worked operationally and really understanding how the grocery store works. And then moving into the real estate analytics side, I spent five years with, again, with Swiss food and rec centers, Kroger, and then was recruited back east, I spent about three years with a whole giant foods out of Carlisle, Pennsylvania.

And then Chris, to your point, I, you know, I was fortunate enough to, to be recruited by Phillips Edison and spent a year there and, and really MTN you know, the entrepreneurial spirit, I guess, was, was kind of founded by the fact that I, you know, having been on the retail side and understanding, you know, the needs of what the grocers are looking at, when they look at a site and opportunity, and then again, being with Phillips Edison, and understanding that side of the equation as a landlord or developer is trying to, you know, put information in front of the grocery tenant.

It was an interesting intersection, because, one, you know, I can really see where that disconnect was between developer and the grocery retailer in the information that was being provided. And so, you know, it was I think it was just the foundation of the idea was, you know, as I especially as I was at it, working for the retailers and and I would see all kinds of packages being submitted to us as a as a brochure.

Some is unsophisticated as maybe a Rand McNally map and a little star on it and saying, hey, we have a site here. And then I would get, you know, reports that would be 45 pages, kind of canned reports of demographics. At the end of the day, I always knew what our charge was working for the retainer, my charge, and that was to forecast sales at a very accurate level using the tools and, and the database and the software that the grocers employ every day.

So that was really the foundation, Chris is is, you know, being that intersection and sort of serving as an intermediary, if you will, to, you know, to the landlord, and to the grocery tenants, and really defining information that was useful and critical, you know, to both groups and and be able to provide that, and that was really the foundation of starting MTN.

Ressa 5:53
And for those who don’t know, what is MTN

Munson 5:56
Sure, yeah, so really, what we are is started as it and still to this day, even with the Creditntell, I know will speak about the acquisition, but we’re an advisory consulting company. And and really, our core competence has always been grocery based on my background. And and John Tippets, the other principle of MTN, so it was, you know, our again, it was a, it was a consulting service where we had the relationships and the information required by the grocers.

And and, and what we do is is within MTN is very specific we, we parallel what the grocers do internally with their research process, their site location process, that’s boots on the ground primary data collection. So we get into the you know, if we’re looking at a trade area, an entire market, we physically visit the stores, assess them, we assess multiple data points.

So we’re looking at real estate characteristics, we’re looking at shopping center characteristics and looking at the grocery landscape. And so at the end of day, what MTN has become is really one beyond IT consulting services really have probably one of the most robust databases of grocery out there is I’ve looked back and John and I don’t typically talk about this all the time.

We believe we, as a company, we’ve been into about 33,000 of the 40,000 grocery stores in the country. I’ve been in roughly 19,000 grocery stores throughout my career. So you know, when you have that type of context, and you have these relationships with the grocers in the background, it again, really what we, what we always try to say to our clients, our ownership clients is we’re going to immerse you in how grocers think, operationally, and how they look at the grocery landscape, and then ultimately, how they forecast new opportunities.

Ressa 8:02
Got it? And what was the typical client? Was it the grocer or a real estate developer?

Munson 8:12
Yeah, a great question. We, what we were the foundation of when we started the company, you know, the first few months back in 2004, we were building up a grocery client, client base, so we had three or four clients that were willing to give us, you know, some some opportunity to do assist to kind of outsource their site location needs to us. And it was probably it’s, you know, in that three to four months, Chris, that we started do really reach out to the to the ownership side.

I would tell you early on, we were probably a little more heavy on on grocers working for brochures that probably represent represented 70% of our, of our revenue. And then, you know, interesting times 2007 is that, you know, as everybody knows, the world kind of went upside down. And what was interesting is while we, you know, we’re struggling to keep sort of those, the ownership clients, obviously, we’re given the, you know, the nature of the the, the economy.

What was interesting is the grocers, you know, and we’ll talk about this, I know it during this conversation about how resilient brochures are. But the grocers kept growing, kept looking for opportunities. I, you know, certainly, you know, high growth markets were problematic for grocers. But but but it was interesting.

As we came out of the recession, we kind of switched, we had more developers, landlords that came to us and seeking, you know, our expertise and our consulting and advisory services to help identify opportunities to get in front of groceries. So I would tell you while we were at that, you know, the first three or four years it was more grocery client centric, the equation flipped in probably 2010 and 20. 11 where we were probably 70% of our revenue was then from the ownership and landlord side.

Ressa 10:06
And one of the things, you know, the core competencies that you guys have is you’re forecasting sales of grocers, both existing and ones that may not exist, correct?

Munson 10:21
Yeah. You know, we were brought in on numerous engagements from grocers, they may have us look at a, you know, an existing facility, an existing grocery store to evaluate if that store is maximizing its potential, its sales potential, you know, it and we obviously, you know, a lot of what we do is looking at, you know, new opportunities for the groceries, whether that’s going into a second gen space, or whether they’re doing a grounds up, we’ll get groceries, it’ll engage us on that landlord side.

They may anticipate a problem, maybe they’ve got a dark space or an empty box, or, or maybe they are, they’re anticipating having a an empty box, you know, the think of now what’s going on with Bed, Bath and Beyond and, and so we’ll get landlords that will, in anticipation of maybe a problem engages to evaluate proactively grocery backfill opportunities.

And and of course, then there’s, you know, just the engagements every day that where there is absolutely an empty box and and that, you know, that landlord is trying to, you know, assess the opportunity, if there’s a grocery cake opportunity there.

Ressa 11:39
And, and, and some ask you guys to give an estimate of sales on existing grocers? Correct, that are in business? Absolutely.

Munson 11:50
Yeah, thank you for bringing that up. Because that’s a lot of what we do is, you know, as I talked about that database that we’ve built, Chris, over the years, over 18 years, and again, you know, we wake up if you will, and, and 18 years later, we have these 33,000 records. You know, we made a conscious, conscientious decision back in about 2011, to really expand the information we were collecting.

You know, prior to that, we were really focused on the grocery store itself, not really paying attention to the shopping center, or the CCO Tennessee, but, you know, we made this decision to expand into you know, those real estate attributes and shopping center attributes and and then the grocery store itself.

So when we come out of a market, let’s, let’s say, you know, we just wrapped up the Las Vegas market 218 stores, we physically visit every single one of those stores, as I mentioned, and chief among what we collect Chris, is accurate sales information, kind of the secret sauce of what we do, not only MTN but really what that the site location analysts do in in in the industry on the retail side.

So you’re right, when we when we come away from Vegas, we have a you know, a treasure trove of information, including sales, accurate sales on all 218 grocery stores within that market.

Ressa 13:13
How close do you find your guys grocery estimates? sales estimates are to actuals. Like I’m sure grocers have like, Alright, go go visit these five stores. Tell me what you think they do in sales. And come back to me

Munson 13:31
Every day that happens, Chris, there’s a, and it’s, you know, listed. I don’t blame them. That’s kind of, you know, the charge to, to tell us what how you’ve, you know, evaluated our stores, I would tell you our charge, and I’m speaking even across the grocery analytic industry, the charge is to be about 90% accurate or higher, and which is a high threshold. And and I’ll let me just elaborate on that if you think about the grocery industry, it razor thin margins, right?

I mean, everybody knows that mantra. And you know, and you know, that that element of air know that you just a margin. It is those it’s those razor thin margins. And so, you know, there’s so much science, but you know, listen, I, as I mentioned, I’ve been doing this 38 years and, and primarily focused on grocery. And when I state this, I don’t mean to offend anybody, but I would tell you, I still believe after 38 years, grocers bring more science than any other retail channel out there.

And again, it’s it’s, you know, it is that factory too, you know, needing a very solid sales, you know, accuracy on the competitive landscape and, and in order to evaluate So, yeah, it’s a high threshold and I will tell you, we’ve we’ve done a lot of research as did credit Intel, as they were as we were going through due diligence.

And I will tell you, we’re probably at about an 88% accuracy is we start evaluating somewhere between 88 to 90%, as we start getting feedback from our grocery clients, related to how we evaluated the store versus what actuals are.

Ressa 15:16
Do you think that the science behind forecasting sales in grocery is that much more sophisticated to the national public retailers out there that aren’t grocery?

Munson 15:32
I really do. And, and, again, not trying to diminish, you know, what other retailers or what other retail channels are doing. But, you know, grocery is, is probably in a, you know, careful when I say this, but I think I can say this pretty definitively, brochures across the board, you know, they’re they do field work, they, again, groups that, like us, or individuals trained with our same skill set, working within the grocery, retail working directly for grocers.

You know, it’s it’s predicated on going into the field and seeing the site. And again, that may not necessarily be all that unique. But it’s all that information that we gather all the analytics that support it. And then again, that high, that high accuracy level that we need. What’s interesting about grocery, Chris is that we view it as a redistribution of dollars, you open a new grocery store, people don’t eat more.

So what you’re doing essentially, is when you open a new grocery store is you’re pulling dollars away from other groceries. Now, again, that may not be exclusive to the grocery industry, I’m sure you open a new jewelry store or a Starbucks and you you know, you are drawing, you know, you’re you know, it’s a redistribution of the disposable income. But grocery is distinctly defined by that. And and again today, aren’t

Ressa 16:55
they pulling from restaurants, some today, and restaurant restaurants, and restaurants on them?

Munson 17:01
The absolutely, absolutely a dynamic that’s going on and, and accelerated with with COVID. So I would just say, you know, what’s interesting about the sales forecasting model that we use very sophisticated mathematic model not proprietary to us, we just simply use what the, you know, 85% of the entire grocery community uses that model has been around about 45 years in some form or fashion.

But the mathematics behind it have always been sound and pretty much fundamentally the same. And I look back at any other, you know, again, as I talked, we talked about other retail channels out there, Chris, I’ve just yet to see that level of mathematics that support that sales forecast in other retail channels.

Ressa 17:48
What factors might there be in a store that might throw off your number, either to the good or to the bad that it’s hard to account for?

Munson 18:03
Is where it is we’re out evaluating sales? Is that what…

Ressa 18:09
Yeah, look. What are some things like, you know, like, this store based on based on your expertise, you’re gonna go back, you’re gonna put the information in the model, this store is going to do $30 million. But if there’s XYZ going on, then all bets are off. I have no idea.

Munson 18:24
Yeah, look, I mean, there’s a lot of factors as we go out and visit the competition. You know, a lot of times you can be deceived by, you know, depending on when you show up to that shopping center, that grocery store, what time of day or the day in the week, you might go in and and if it’s you know, live, it’s early in the morning, maybe a Tuesday morning, and, and the parking lot doesn’t feel very full.

You might, you know, you try not to draw any conclusions that way. And on the reverse going in on a Saturday, when it’s just absolutely packed and making the wrong assessment. A lot of times we’ll look at product is that are the stores, you know, the housekeeping is the store well stocked. And sometimes you can be deceived, where, you know, out of stocks don’t necessarily translate translate into the store so busy that they just can’t, you know, keep product on the shelf.

So, you know, what we do, you know, maybe a little bit of that secret sauce. What we do as an industry is we actually we, you know, in the reconnaissance, we speak to key individuals within the store, so we’re not talking to a bag or necessarily, you know, someone working the check stand, we’re talking to, you know, people in management roles, the produce manager, the, the, the meat department manager, and, and, you know, and the reason you’re talking to them is those individuals, Chris, are the people who really know intimately how the store is performing.

So there’s things again, that you know, the aesthetics of a store, there’s things that you walk in and see the physical nature of the store that you can draw some wrong assumptions. That’s why we’re, you know, what we do is make sure we speak to somebody have knowledge And, you know, the last thing we can do is certainly walk up to him and say, Hey, we were trying to ascertain sales, can you help us out?

But you’re asking key metrics about the store, you know, you’re asking about, you know, perhaps how well the produce department is doing volume wise, and what percent total produce accounts for total store. So we’re, you know, we’re trying to mitigate as much as we can from looking at the store physically, again, drawing assumptions from housekeeping or, you know, out of stocks or just general condition and making sure that we speak to somebody have knowledge about how that store is performing.

Ressa 20:38
Got it? Okay. So you guys started in 04. And then you sell the business? We did. And you sold the business last year 22, or 23?

Munson 20:53
November of 2022.

Ressa 20:58
Selling point 2? What was the… walk me through that? Let’s just stop right there.

Munson 21:03
Well, if you haven’t met, yeah, if you haven’t met Josh stuff, and he’s a hell of a Salesman. And I mean, that Josh, was the my first interaction with Creditntell. And, and, you know, we started the dialogue, February of 2022. You know, well, in advance of, obviously, a lot of due diligence, due diligence along the way, I have to concede that I really didn’t know I’ve heard Creditntell’s name, but didn’t know much about him.

And after that first conversation with Josh, just talking about our companies and, and our client base and our offerings. It didn’t take long in that first conversation for me to you know, to pique my interest about, you know, what would this look like? If if we were to, you know, combine or be acquired?

You know, it was a, you know, like any of these these issues, you know, Chris so intense due diligence along the way and, and, and it allowed us to really understand credited Intel’s offering to the market. Understand the leadership and and then in the inverse, you know, they obviously dissected Mtn.

And really, you really want to understand the whole genesis of income, everything we’ve talked about here, and, you know, where we’ve been, where were we at the time, and where are we where are we planning to go, what was interesting is, we had MTN just probably, I don’t know, six to eight months prior to our conversation, the initiation of conversations with credit until we had actually put our grocery database out into a subscription type service.

And, and what I can tell you is, from that standpoint, being an advisory service and a consulting company and trying to move into a subscription based company, a lot of challenges there, and, you know, and again, we were, you know, a smaller company with no expertise in that subscription side.

So it was really a blessing and a chance of opportunity when, when Josh had reached out credit Intel to talk about and as they understood what, you know, this this immense database of 33,000 Grocery records, you could, you could see that, that their eyes light up because now they had, you know, a piece of the puzzle you know, to the to the whole shopping center, you know, dynamic that they that they’ve always tracked.

And now they have, you know, even more precise information related related to that daily traffic driver, the grocer so, you know, really Chris outside of the, you know, the the intense due diligence, John Tibbetts and myself, we never balked. We knew that this was the right group to kind of lock arms with and to really take our data and our information to the next level and make an edge.

Ressa 24:06
You said you never flinched. Deals are tough, and I was just part of the m&a deal. I can’t say what here but I’m part of one. And was there a point when you’re like, I don’t know if this is going to work?

Munson 24:21
Well, there was a point when when you have the the attorneys involved, we knew conceptually everything was great. But you know, and again, this is such a, what we do in the on the advisory side and look in credit and tell certainly has advisory you know services but but but you know, I think that just trying to get their arms around it and and then the legal side of it. Yeah, there were a couple of times when we were like this is pretty intense.

And we just had to step back and take a breath and I have to give credit to to credit Intel and and they kept us motivated all along through the whole process.

Ressa 25:00
Excellent. So, appreciate that whole intro. I want to talk about grocery for a little bit Great. So let’s hop right in. Let’s get right in. I’m going to ask you a simple but really hard one. Okay. What is a grocery store?

Munson 25:23
Well, yeah, look, you know, you could you could look at the dictionary, you could look at icsem definition, there’s a myriad of, you know, ways to look at the grocery store. You know, how I look at it, Chris, to me in all these years of working at the grocery store, and then, you know, this, this, this, this immerse, you know, intense immerse, immersion of all the data that we go through, and all the stores we visit in the markets in the cities and the trade areas.

To me, the grocer is the focal point of that community. And I know that sounds tacky. I know it does. I know it sounds like lip service. But think about that grocery store. Look, I’ll take Jim’s out of the equation, because people go there every day. And well, that I said, you know, a lot of people subscribe to go. But that grocer, you’re visiting that. I think the lat last statistic I saw was a minimum of 1.5 times a week that you’re visiting that store.

And it’s the essentials, right? I mean, again, we’ve been through this with COVID. And but you know, I hate to kind of regurgitate this, but right, that reinforced what the grocery store is, Chris, that is your essentials, I mean, it is your daily needs, it’s your food.

And I think where it really comes home to me, Chris is when we get in, you know, we’ve been fortunate enough that we’ve, you know, we’ve worked with municipalities, and we’ve worked with, you know, the public sector, and, and where it really becomes so start to me of what the grocer is, when you see when there isn’t a grocery store food deserts or rural markets, or you can even be in, you know, you can be in a dense, densely populated area and still not have direct access to a grocery store.

So to me, that’s what it is such a foundation and a focal point of the community. That’s what I call it is, is it’s is that it’s just, it’s, it’s a niche,

Ressa 27:22
I’m going to challenge you dog. Because I think that could be a lot of different stores. There’s any store could be the focal point, does the product mix that it has or anything like that has anything to do with defining? Because in my business, I have to define it much tighter than that.

Munson 27:39
Sure. Absolutely. And look, you’re right. I mean, you could look at a lot of different categories and say, Yeah, look, that’s a, that’s a primary need. I mean, I think what’s interesting about the grocery store is, if you look at the evolution of I mean, this is going back to, you know, the late 1800s, when, you know, Barney Kroger started, it felt this concept of a, you know, a grocery store, and then you look at the evolution where it was kind of the 70s were expanded into a supermarket.

Right, so now that groceries aren’t just, you know, it’s not just a meat counter, a little bit of produce, and then some don’t take away

Ressa 28:15
my next question from me, I hope.

Munson 28:20
But, but if you think about that, that evolution, and and then what the grocers are trying to do, Chris, I mean, you know, I think it’s interesting to watch how they’ve, you know, brought additional services in dry cleaning, and they brought, you know, you know, banking services into there. And, and, and then at the all the time, you know, floral and now pet care it, you know, I again, I look at that grocer and what they’re trying to achieve. They’re trying to be all encompassing, if you will, as far as daily needs,

Ressa 28:52
So not. Well, I would, I would challenge that, right, because some of the specialty grocers are not trying to be all encompassing.

Munson 29:04
Agreed, agreed. And there’s, you know, and listen, there’s a role for them. I think it’s like any concept, any retail concept, I, you know, these niche players, you know, you find them in every category. You know, they certainly they provide a need and the right demographic in the right competitive landscape.

But I just think more globally that, you know, your question is, you know, what’s a grocery store? I think of that conventional, more that conventional supermarket concept that, you know, really tries to be everything within.

Ressa 29:36
I’m gonna, I’m gonna give you two definitions that I’ve found. Okay, great. So, I don’t know that I love either of them. Okay, Merriam Webster. I certainly I don’t like this one, which is, it defines it as a store that sells food and household supplies, period. To me, that’s too broad that Could be, that could be. I mean, a department store could be a grocery store because they sell household supplies and they sell some food. So that’s a major store.

Yeah, yeah. Which I don’t consider a grocery store. I will. I don’t know if you’re aware of this, but the USDA has a definition of a grocery store. Let’s hear it. So the USDA definition of a grocery store is a supermarket or large grocery store, if they reported at least 2 million in annual sales and contained all the major food departments found in traditional supermarket, including fresh meat, poultry, dairy, dried packaged goods and frozen foods.

Munson 30:44
Well, a very sterile admonition right. But you would expect that from the USDA,

Ressa 30:50
I mean, USDA is definition of a grocery store. Yeah.

Munson 30:55
Yeah, it doesn’t give you the warm and fuzzy that, you know, just like a very straight, you know, strict straightforward definition. Yeah. Again, I, you know, there’s, you know, there are a lot of ways you can define it. And I agree with you, Chris, to the point that, you know, you can look at a lot of different retailers, and how they go to market and what they offer.

But, again, I come back and I think of those if you think of like the, you know, again, in, in, in my experience, you know, we don’t get a lot of clients reaching out and saying, hey, you know, I need a paints, I’ve got to have a paint store here, or I’ve got to have sporting goods here. I mean, it starts with the foundation, the fundamental of, I’ve got to be able to serve my daily needs, I’ve got to be able to have food, access to food and and, you know, and the ancillary products,

Ressa 31:47
Right. So in my world, we have to define these things, right. And so we have, we have, we have leases that define the difference between off price discount, and outlet, you go to anyone off the street, and they think they’re all the same. And we have distinct definitions for all of them.

No different than there’s a very you we have to define the difference between target Walmart than what some might call traditional supermarkets, Kroger, Publix shop. Right, then the specialty supermarkets, Trader Joe’s Whole Foods, all the little, what have you, and and if you don’t get the definition, right, it could mess up a whole real estate project.

Oh, sure. So and so, you know, when we think of traditional supermarket, I think a lot of people are thinking like Kroger, Publix, but just by what you were saying before, you mentioned daily needs, right? Do you put target into, into into that? Is that the same as Kroger in your world?

Munson 33:04
Well, look, I mean, you certainly we get much more granular and and we you know, everything from the art we look at the offering to and look at the customer type and, and, and, and. And each of those stores we can define even, you know further I mean, we talk about mass merchandisers, right, we can talk about Super Target versus a regular target. So, yeah, right.

And and it’s interesting you say that, Chris, because we really define a there’s about 13 categories, format types. So maybe to your point, you know, we look at, you know, natural organic, we look at quality service, right, which would be a Wegmans, kind of a Harris Teeter upscale, we look at discount Hispanic, we look at limited assortment, we look at discount. We look at again, we look at the supercenter format.

So, you know, yes, I make a generic statement about the supermarket, but there’s no doubt that, you know, I mean, you can have a trade area in any given market in more dynamic markets, but you can have every one of those categories within a trade area. Right.

And I think that’s what’s so unique about, you know, that the grocery space is, is there’s just such a unique offer all all centered around, let’s admit that, you know, you asked me about target, I mean, think of what target the decision they made 1012 years ago, right to really decide that they you know, they needed to bring a grocery component to this, why my view, they needed the daily driver, they needed that, that that push to get customers into the door more often.

Right? And that’s what it comes down to. So when I look at, you know, I look at a target of what we call pea fresh, more of the conventional target. I mean, think of what they’ve done about 25% of that square footage within that you know, a 90,000 square foot target is is grocery related. And again It comes back to driving that need for, you know, to bring that customer in more often, you know, to expand their their other offerings. So,

Ressa 35:10
Yep. Random one random. And then we’ll get into some of this. I appreciate you going through, you know, playing Mr. dictionary for me. You come with the a plethora of supermarket experience, one of the things you’ve always heard is like is this brand loyalty that supermarkets have? And so as Kroger has, you know, purchased businesses over the years, they haven’t changed banners, right?

They have Ralph’s on the West Coast. And, you know, you know, Kroger here and Eric, Harris Teeter and all these things. And you know, you’re right. Yeah. Yeah. The specialty grocers and mass merchants have figured out how to cross market cross trade areas under the same banner, all D Trader Joe’s Whole Foods, Wegmans. Now HEB. Why do you think they’ve been able to do that?

Where some traditional supermarkets have struggled? Well, if you take like all the, I think it’s a really good example, I think Walmart and Target their offerings, so big there, you know, top 20, fortune 500, I do think it’s a little different. But when you take someone like all the who’s expanded so robustly and done such a tremendous job, and now they’re like they’re on like all these food lists of top 20, these proprietary private label items in the store.

How do you think they were able to do that versus some of the traditional? Who haven’t crossed over? Or had a lack of success when they tried?

Munson 37:02
Yeah, well, look, I mean, let’s start with the foundation that, you know, that you have to provide, you have to provide something of value, right? And to gain that loyalty I even think of maybe even a more applicable case study is Trader Joe’s. Chris, I mean, if you look at the evolution of Trader Joe’s, you know, I think some people think that they came out of the gate wildly successful.

They didn’t they struggled for years to get that that reputation, what’s their value? What’s their offering, right? So to me, I break down, I hope I’m answering this, but I break down grocery into three different categories that you’ve got to play in somewhere in the space, or between one of these three, but or maybe you play in all three. But you’ve got to be, you know, we use this word experiential, but I still believe that you can have an offering, that’s an experience.

And I look at Trader Joe’s, I look at all the staying with your example, all the you know, figured out how to become a treasure hunt right? At the end of the day. To me, I look at them almost like a small Costco, I walk into an Aldi and and in that promotional while there’s something different, there’s always something of value, they’re value driven. Right. But there’s also a bit of an experience.

And I do think that the second component is that it’s having a value proposition, you know, right, and it doesn’t mean necessarily even just distinctly being, you know, price oriented, but there’s got to be some value you’re bringing to the customer. And then I think the third that’s arisen, you know, over the, you know, the past, you know, few years is a technical technology component.

Now, I’m going to be careful saying that, because I also, you know, we’ve watched Amazon come in, and go all in on the Amazon Fresh with that technology side. So I think when I say technology, I think there’s something that has to be offered as far as convenience. I mean, look at the self serve, checkout. Now, again, we can we could debate that, you know, on a whole different show, but I but I do believe that you know, either in providing an experience and or a value and or some type of a technology component to this.

So I when you asked me about all how do they you know, how do these certain groups cross that threshold and build that loyalty? And other groups just struggled with the banners and the names and how do they resonate? You know, I just think that’s it. I think you’ve got to fall in those categories and look at all the right like I again, coming back to them. It is such a value proposition and a treasure hunt. Look at Trader Joe’s same thing that private label means something now to people. It took a while to build that.

And I think the other thing Chris too, is it You know, we talked about niche and we talked about the specialty grocers. I mean, you’re always gonna have groups that appeal to the masses. We, you know, we call those conventional, right? Those are the Kroger’s, the Publix. I mean, I think that’s harder to build that a little bit of that loyalty. Because people are going to you know, if you’re if your Publix is greatest Publix is, you can’t bring in that, that that Trader Joe’s experience, he just can’t.

And so I do think that, you know, you get again, these national companies that have you know, they’re trying to appeal to the masses, Chris. And, and then when you get to like the Wegmans, they know distinctly who that customer is. They just know it, they live it and breathe it. And they and they, you know, and they design their stores, they design their experience their locations around really understanding that customer and really laser focus where to place their stores. Right. I hope that answered I’m not sure if it did, but

Ressa 40:58
I’ll take it. Okay. All right. Let’s, I got two more real things I want to talk about. Maybe three. Okay, you’re making me sweat. Let’s see what happens in this one here. Okay, right now, where we are today, going into the ICSC Las Vegas? What are the three?

From the grocery perspective, less about the real estate side of the world? What are the three hot topics in grocery right now? What are like the business people in the grocery business? What are they thinking about? What are they talking about? What are the trends? What are the hot topics? Well, I’d

Munson 41:37
Say one, and and while we’re hearing some easing, I would tell you inflation. And inflation has been a topic for a year. You know, it’s interesting, I, you know, you know, the, the groceries, right? They, I mean, they’re such a pulse on the, you know, the economy, you know, because they can watch the trends of what people are buying, if they’re going to private label, if they, you know, that’s such a pulse right within that grocery store of how people are trading their dollars.

So, look, it’s you know, I think what’s interesting about inflation, Chris, is what, you know, there’s some groups, we just spoke of all the Think of grocery outlets save a lot, there are groups that are flourishing in this in this environment, but there’s other groups that have just, you know, we’ve got a couple of clients that we speak to every every other week, and, and even operational issues, and they will tell you, that trying to communicate to the customer, that why the prices are going up, because the CPG companies are raising prices, it a lot of times it falls on deaf ears.

So I would tell you that inflation is still a topic, even though we’re seeing a little bit of, you know, relief in grocery prices. The last, you know, the last couple of reporting quarters here.

Ressa 42:52
That’s one inflation. Yep. And with Yeah,

Munson 42:56
I would say that a big topic and maybe we’ll address this in a few minutes, but I’m gonna have to say at the Kroger Albertson is a talk. And and look,

Ressa 43:10
let Yeah, let’s hold off. We’re gonna get to that one. That’s absolutely

Munson 43:13
And, and I know, you asked me to, you know, not to get too much into the real estate side of it. But I would say construction costs, though I you know, it just is a it’s an issue out there. If I took that one aside, I would say supply chain is getting better. Chris, it’s labor. The third one is absolutely labor.

Everybody is struggling with it. And it’s in elicits, it’s an inherent problem. But becoming even more of an issue of retention. Right. Again, I, you know, groceries just by nature being, you know, kind of that retail sector, there’s some turnover, but by every grocery we talked to trying to find continuity in employment and and retaining them. Always a topic, especially since COVID.

Ressa 44:05
Okay, what about is, is the topic of E commerce boPET i on the channel, that that’s kind of the that’s the Taylor it’s not as it’s not as forward as it once was.

Munson 44:20
I believe that’s a true statement, Chris, I think, look, I mean, it’s, you know, if you think of the relative short time period that e Commerce has been on the, you know, front and center, I stepped back to you know, I mentioned I had an opportunity spend three years and on hold, and at the time I’ll hold was, you know, out of the forefront working with pea pod if you don’t know that name, or and that was 2000 2003.

But it was so you know, that, you know, they were testing the waters and everybody all the other grocers were kind of like, well, we’ll watch and see what happens. And then fast forward, you know, even Prior to COVID, I, you know, obviously a topic of conversation. I think what’s interesting, Chris, I think what people are reconciling when I say people brochure specifically what they’re reconciling is, I think we put so much forethought into E commerce we were so, you know, so laser focused that we had to play in that space.

And we had to figure it out. Now, I think what’s interesting, you know, the last statistic that, you know, I saw from, you know, it was published is, you know, ecommerce is still accounted for about 10 to 13%. And we saw an elevated during COVID by design. But isn’t it amazing, Chris, that we’re talking about 13% of the grocery dollar going to e commerce. And I think they’re, I’m here to tell you, we saw it, and I am not going to name names in groceries.

But some of the most prominent grocers were so hyper focused on E commerce, they were forgetting about the other 85%. And what I mean is store conditions were lacking. Labor was lacking. The Checkout, you know, just everything making the checkout fluid. And so I think that there’s this pendulum a little bit of a pendulum swinging back. It’s important Criss ecommerce is important.

But I think as long as groups feel like they have a viable platform, that if anything were to rise like COVID, again, that they could facilitate that. I think that there’s more of a train thought to that physical store. I really believe that I’m not and again, I’m not saying that these aren’t topics of discussion, we have conversations with our grocery clients all the time. But I think the recognition is we’re talking about a minority of our customers using this platform, we better start focusing on that in store experience.

Ressa 46:49
The I agree, I, I’ve even seen, I’ve seen both, which is I’ve seen some retailers put in stores that that the consumer, like letting them know, Hey, you don’t have to come to the store, you can buy it online. I don’t know if you’ve seen that in the grocery stores. I’ve seen that.

And then I’ve seen other promotional things that said, if you buy it in the store versus online, then you know, there’s some discount for driving to the store. One of the stats I heard a while ago, and I’m not sure if it’s still relevant is that like the average grocer loses about $25 per delivery. I don’t know if that’s the right stat. And that still holds water anymore.

Munson 47:35
It does Chris and I think that was the stat I had seen is is look at I mean, what’s amazing about this is you have some of the most prominent players, right in the entire retail space, Walmart, Amazon target. And yet nobody as far as I know, I’m immersed in this every day, I’ve yet to hear anybody make it profitable, not even Amazon, right? That if anybody could figure out, you know, the E commerce space and make it profitable, they haven’t.

And listen, I, you know, look, I’m here to tell you that they’re smart people, and they’re going to figure this out. But I also think at the same time, Chris, they’re going to figure out this balance, how do we, you know, how do we serve that customer that really, really wants that, that online experience, make it fluid? And how do we make money. But I still believe that at the end of the day, that the grocers and retailers in general have got to always keep their eyes on that, on that on that physical store.

Ressa 48:40
So you’ve seen a lot of money deployed in the E commerce solutions? No one you haven’t seen anyone be profitable at E commerce grocery yet? The to give everyone context, if you were to give like what’s the one determinant that makes ecommerce grocery so challenging to be profitable if you were to give like, I know there’s a lot of little, you know, ingredients Snack Cake, but what would be one?

Munson 49:15
Well, and again, so it’s an overused concept here, but it’s it’s the last mile Chris, it’s it’s the expense. It’s all the I know I’ve I’ve disregarded what how you asked me to explain this, but because I’m making a little more complicated, but think of the hands that are touching the product, right? At the end of the day.

They’re still and I know that look, there’s you know, Kroeber with with what they’re doing with technology and even Amazon, but at the end of the day, they’re still having to put it in the vehicle, somebody touch it, to put it in the vehicle, drive it and hand it to the customer. I think that’s the problem. nobody’s figured out the last mile To me,

Ressa 50:02
got it. Okay. Well, that was super helpful. So we’ve got the top three in your eyes just to go back hottest topics, inflation, labor. And what was the third one?

Munson 50:17
Well, I brought up merger and acquisitions,

Ressa 50:19
merger and acquisitions. Okay. Speaking of that Kroger and Albertsons What do you think here? Out here,

Munson 50:29
I think it’s gonna get done. But I think that it’s going to be a tremendous pain point. And I can, I can kind of see your skeptical skepticism. i i Look, Chris, this is what I’d say there’s going to have to be tremendous concessions. And isn’t it interesting that when this started, you know, eight months ago, when this kind of hit the news, or, or even prior to that, you know, isn’t interest interesting that, you know, there was 150 stores spin co put off it, you know, like, hey, here we go FTC, we’re gonna get ahead of this, we’re gonna put 150 stores.

Now we’re talking somewhere upwards of 600 stores. So that to me, Chris, what it becomes is, what’s the pain point, right? Or even more, you’ve got, you know, you’re saying more, and it could be higher than that. So how bad is this Kroger and Albertsons want this? And what are the concessions?

And I feel like this is just me, Chris, one man’s opinion, but I feel like that they are. They’re hell bent on making this happen. Both companies, and I feel like they’re, they’re, you know, they’re gonna make these concessions. You know, to the FTC, I just see it, it happening, but at a pretty steep cost here to both companies.

Ressa 51:48
So I’ve pontificated this. Not not a lot on the podcast, I tried to stay out of politics, but because I think this is more political than we would like. And that’s, that’s why it is what it is so. So talk about a couple of things. So in a in something like this, there would be, you know, the, to for any trust, the FTC would force a sale of a certain amount of stores. You mentioned it started at 150. Move to 650. It’s, it’s seemingly going to go higher. But let’s, let’s assume it’s some number between 500 and 1000. Okay. Taking all these stores?

Munson 52:48
Yeah. And that certainly becomes the issue, right, because at the end of the day, the first thing that the FTC is going to want is a grocer to backfill it. Right. And that’s right. Yeah. And, and then what I think is interesting, Chris, and I began to hold different podcasts here that you could put together, but, you know, people are throwing Amazon into this, that, hey, they’re there, they could come in and buy in a big swath of stores. I have a hard time believing that one.

They’re gonna get scrutinized, you know, for their market share, even their online, you know, existence, I do think that there would be an additional scrutiny to, to Amazon. The other thing I look at and, you know, why is Amazon dumping a lot of stores? If you just saw where, you know, they’re exiting, you know, any thoughts are going into Detroit and Minneapolis.

So they’re, you know, they’re peeling off stores. I just don’t see that being viable. Now, that said, Chris, I will tell you that, you know, we have a lot of grocery clients out there that apparently, and I’m here with my arm to the square tell you I have not seen a list, but we’ve got grocery clients that have are looking at the list right now. And oh, so let

Ressa 53:59
Let me, let me back up. Let me back up. Let me I’m bullish on the grocery market. We’ve done a bunch of grocery deals, there’s grocers who want to expand. But and there they are expanding. By point two, the question was, we’re talking about 500 to 1000. Yeah. We’re north of 500. Let’s call a spade a spade, we’re no we’re going to be there’s going to be north of 500. And these boxes have to have a grocer.

And they’re going to have to be in markets where some existing grocers not so they need a store. And you’re going to have to have that quantity willing to eat up that much space. All together. Yeah. And we’re talking about just to my point before, this was a lead in, which is majority of grocers. The traditional That’s that would be easy. backfills don’t crow don’t cross borders. They end at some border. Right?

There’s very few that have the same banner across multiple borders. You know, right now Publix has been expanding and they’ve been bucking the trend. Kroger did it for years. But in general, most of these groups, they crossed borders with a different banner. So if you don’t have a banner in that market, I think it’s going to be a challenge. I think this divestiture not just in the cost of the divestiture. But just in pure, the FTC is going to want another grocery store in those locations. I don’t think that’s easy.

Munson 55:46
Well, and Chris, a great point, and let’s step back and look at the Albertsons Safeway merger. And if you know the story about Hagen, right, a 19 store chain, based out of the state of Washington in the Seattle area, they wake up one day decide they’re going to I don’t remember the number but you know, go from 19 stores to almost 200 stores, took them into Arizona, and Nevada and California overnight.

What happened six months later, it derailed. And, and, and I will tell you, a lot of the Fallout was the FTC FTC lost a lot of a lot of credibility for letting that go through. So Chris, I’m agreeing with you on that, in that, look, it’s let’s let’s pick that number and say it’s 700 stores. I agree that that is absolutely problematic. And what you can’t do is force, you know, again, Hagen was sort of this forced, you know, competitor to to take to come in and be a solution.

And it was a disaster. i This is my feeling, Chris. And there’s going to have to be concessions all along the way. If it’s 700 stores, and there’s there’s 150 that get left out there that don’t backfield by a grocer, that may have to be the case. And now look at that right now.

Look at the landscape, right, you’re on the landlord side, the ownership side. I mean, there are so many considerations here. To your point, I would agree with it, just to magically say we’ve got 700 stores and groups are pills to fill that vacuum up. That’s very problematic to think I

Ressa 57:30
I think there are a significant amount of grocers looking to expand, we’re doing it at that number in those specific spots is what the FTC wants. Yep. I think that makes it really challenging. So we’ll see. So that’s what but so we can pontificate on whether the deal goes through or not. I hope everybody gets what they want. And, and everyone’s happy. And there’s lollipops and rainbows.

That’s what I really hope. But let’s let’s I want to take two things that people aren’t talking about. Everyone’s talking about everyone, all everyone can say is, will the deal happen? Will it not? And if you get past that, then how many stores will get divested? That’s all I hear about?

That’s that’s the conversation. Quite candidly, I’m over that conversation. Everyone’s got their opinion. Here’s what I want to see. Let’s assume the deal happens is what no one saw that. What does it mean to the grocery industry? What happens?

Munson 58:27
Well, look, you’ve, you’ve now got a dominant player that and dominant players that are now even more dominant, right? I mean, that let’s just call it what it is. It’s your now. You know, you’re taking what is already a mega chain, and making it even bigger. I mean, I do worry about that, Chris I now now again, Kroger and Albertsons are quick to say that we still even after that, we’re still not the largest chain.

Right. That’s the Walmart is outpace this. So, but I listen, I what I think happens is, I mean, this is why I said this is what the topic going on in the industry is we talk to our different grocery clients. I think there’s a big worry about that, how dominant they become, and in the, you know, the saturation of markets, you know, markets and market share.

I mean, you look at a Phoenix, you know, I mean, there’s a there’s gonna have to be a lot of fallout there. I mean, a lot of divestiture to make sure that you know, Kroger isn’t sitting there in a, you know, in a hugely dominant market share position. So, you know, look at Yeah, I mean, it’s

Ressa 59:39
Everything what is the benefit to the grocery industry if it happens?

Munson 59:47
The benefit jeez, I don’t know if I could articulate a specific like, this is, you know, a win win for everybody. I mean, you’ve caught me kind of flatfooted with that. Chris, I don’t know that there is a IT people standing up just is an industry in sharing this, I don’t see that it’s a win win situation.

Because again, it’s you’re going to take, you know, you know, two different companies that have different propositions, offerings, price propositions, and you’re going to marry them. I mean, by definition, these are going to, you know, these all these stores are going to look alike and provide pretty much the same service and the same pricing. I mean, look, you know, I don’t I’m like you.

This is it gets into the political realm here, when you talk about these, these type of mergers at this level. You know, there’s all these points out there that Kroger and Albertsons are making about, look, it gives us ability to bigger buying power, we can now compete against Walmart and Amazon and lower our prices. I, you know, I haven’t done enough in the research to be able to say, Yeah, that happens with these mergers. I don’t you know, I don’t know if that’s the case.

Now, on the flip side, I guess you could say if I’m a competitor, and now all these stores are looking to like their conventional and they just, you know, they, however, they’re going to Banner, these I don’t know if anybody’s even spoken. I suspect, Chris, that you made an earlier point about how most change just kind of keep those banners I haven’t even thought about if if it’s an Albertsons does it change to a Kroger?

I don’t I don’t know. I’m sure they figured that out. But, but I do think if there is an advantage, if I’m the competitor in this market, outside of the fact, they might have to divest some stores, maybe even some strong stores.

You know, we talked about the niche players, Chris a little bit earlier, and how they know to come in and and they’ve defined that customer and they offering to make a differentiation. Maybe that’s it. Maybe you say everybody, you know, now you’ve got all these stores that now even more look alike. Now I can come in as a competitor and really differentiate myself in some type of format or offering. But other than that, I don’t know. If it’s a win win, it’s all around. I don’t see it.

Ressa 1:02:06
Well, then let’s go to this. What’s the impact on the grocery industry if it doesn’t happen?

Munson 1:02:17
Well, look, I don’t I think it’s just business as usual. I mean, well, let’s say this, I would say that it probably is going to, could be a precursor to future acquisitions.

That I mean, let you look at the history of these things happen all the time, more on regional basis, we don’t really see these large scale acquisition, mergers come m&a is coming along often, but I don’t honestly, Chris, I think it’s, it’s like anything, probably a lot of griping and amongst Kroger and Albertsons, the attorneys make out like bandits and then, but everybody probably goes back to the market and competes, and and Albertsons, and in Crover, just, you know, go back to where it was before.

That’s how I view it. I don’t outside of having an impact on the mindset of, of, and the, you know, in the reality of being able to get mergers done at this level. I think if it doesn’t get done, I think it’s going to be, you know, a shot across the bow that the FTC does not allow these types of mergers of this of this scale.

Ressa 1:03:26
Okay, got it. Well, we’re running short on time. This was fantastic. I really appreciate it. I want to bring us to the last part of our show. Great. You ready?

Munson 1:03:42
I’m ready.

Ressa 1:03:43
I call it retail wisdom. Are you ready? I’m ready. I got three questions for you. Here they go. One: What extinct retailer do you wish would come back from the dead?

Munson 1:03:58
Sports Authority?

Ressa 1:04:00
Got it. Number two. What’s the last item over $20 You bought in a store?

Munson 1:04:06
Patio umbrella at Costco in store?

Ressa 1:04:12
Oh, sale club or grocer.

Munson 1:04:17
But let me tell you this. I live within about a half a mile of a grocery store here in Utah. But I can tell you every day what I’ve spent and it’s always over $20.

Ressa 1:04:31
Last question, if you went shopping at Target and I lost you, what aisle would I find you in?

Munson 1:04:36
Oh Chris, you’ve opened up a can of worms. Just ask my wife. As I mentioned to you, I’ve been in about 19,000 grocery stores. I walk in the store. I’m not gonna tell you to walk every aisle. Chris. I have a target but I walk virtually every aisle and my mind is is set to my analytical side just never never stops.

So I’m walking looking at out of stocks, I’m looking at presentation I’m looking at the how or the employee interaction so you’re gonna have to follow me and I have a feeling you do the same Chris. It’s your retail background, but I just I moved through that store and I try to see as much as I can of that store whether I’m going in for my wife’s going in for one product or I’m going in for, you know, the same, just a simple shopping experience turns into a half hour walk of the store.

Ressa 1:05:26
Got it? Okay. Well, Doug, this has been great, really appreciate it. Thanks so much for your time. Thank you for listening to Retail Retold. If you want to share a story about a retail real estate deal that you were a part of on our show, please reach out to us at retailretold@dlcmgmt.com. This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney.

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