Grocery Store Chain Business - Rob LaBonne of Labonne's Markets - Unusual Profits ep 19

Hey, Michael here. You will now hear some episodes of the Michael Girdley Show that we had branded differently, called Unusual Profits or some such like that. Same show, same person, just me interviewing people and producing content that could be helpful on your journey and mine as well. So with no further ado, here's the episode. Hey, Michael here. Sponsor for today's show is actually a product that I'm a part of called DM Bridge. And what DMBridge is, uh, is a service that we built, uh, to solve the problem that Twitter's direct messaging functionality is a total mess. So we built DMBridge to help you fix that. Um, a lot of the other solutions, uh, do things like requiring you to install a whole nother inbox. We didn't want another inbox, so we created DMBridge. And what it does is it takes all of your Twitter DMs and has them appear inside of your email inbox. So you can reply to them just like it's a regular email. You see them just like it's a regular email. You can search them later like it's one of your regular emails, all just by using DMBridge. So, uh, we're currently live with the product. Uh, would love for you to sign up and become a customer, uh, and check it out. So you can find that at dmbridge.app, uh, and go on there, put in your name, uh, and be either part of the beta or join us as part of the live use of the product. And again, check it out, dmbridge.app. All right. Welcome to Unusual Profits. Uh, I am your host, Michael Girdley. Uh, this is the internet's number one podcast, Rob, about niche businesses and the people that run them and that thrive in them. So, um, super excited to have you today. And if Twitter is any indication, The internet and everybody in the world is super excited to learn about grocery. And, uh, and I'm so glad that you're here to share that with us because I'm the world's number one business nerd and I am so excited to learn about grocery. It's going to be great. So Rob, thanks for being here. Our guest today is Rob Le Bon of Le Bon's Markets, uh, all located in Connecticut. Do I have that right?

Yep.

Yeah. So super excited to dig in with you and thanks for doing it. So let's just jump right in. What, what is Le Bon's? What does the business do?

So LaBons is 4 supermarkets in Connecticut, kind of the northwestern part of the state. Originally started as a small butcher shop in— well, the current corporation started in 1962, but I am technically a 6th generation butcher. My great-great-great-grandfather sold meat from horse and buggy around the turn of the last century, and they— he had his own business. It was LaBons Meat Market back then, but then it skipped a generation and a half And then it was formally restarted by my great-grandfather and grandfather as 50/50 partners and has since grown to full-size supermarkets. We now have 4 stores and just under 400 associates. And it is a wild ride, but it's, it's fun to see that Twitter and the world wants to hear about the grocery business. So you don't hear that too often.

It's going to be great. Well, so, so I looked in, you know, there were 4 stores in Connecticut. It seems like you guys are mostly geographically located in the smaller metropolitan areas, smaller towns in Connecticut. So is that— is that kind of the niche? What is there something in common about those locations?

Yeah, very much so. I mean, ideally we are the only traditional supermarket in our towns. You know, we just acquired our fourth store in December of 2019, and that store kind of checked all the boxes. It was doing at least $10 million a year. It was the only traditional supermarket in town. It had fairly high barriers to entry. Great team, good track record. And so it was a perfect fit for us. And we've made mistakes in the past of thinking, you know, oh, we could buy a store in a town with two major national chains and be wedged in between them and we'll make it work. But if you don't have the volume there, like if you're not doing kind of at least that $10 million a year mark, it is really tough to make it in this business.

Yeah. So, so your niche of where you live in the grocery universe, so obviously at the very big end of the spectrum is you know, Walmart, who is still the biggest grocer in America, right? And then you work your way down to kind of the regionals and the super regionals, which I guess are Albertsons, H-E-B, who's located where I am, Whole Foods, which is kind of parallel to those guys. And then where you guys fit in is like the next level down, kind of markets that are too small for the big regionals to care about. Is that how I should think about it?

Yeah, I mean, we are, you know, in one of our towns, compete with Stop 'n Shop, which is a big super regional.

Okay.

And in our other towns, we typically have a super regional like just next door in the next town over.

Okay.

So we do compete with them in that way. But ideally we are in a smaller town that is restrictive to new competition.

Got it. So is that pretty common? I mean, I know in a lot of communities in the Northeast and in the West Coast, it's hard to go find a new 15,000 or 20,000 square foot retail space. So is that— I mean, that's, that's part of the moat, I guess, around your business at this point.

Yeah.

Yeah.

You know, a lot of people ask like, how do you survive? A lot of it is just in a great location.

Yeah.

Many people don't think so much of what we sell is a commodity. What you buy from us, you buy at Whole Foods, you can buy it at Stop and Shop, you can buy it at H-E-B. There are unique and niche products that we make in-house and can be unique and different about, such as our prepared foods, you know, our prepared meats. But most of the center store items, the vast, vast majority of the items in the store are all things that you can get pretty much anywhere else.

And then so then you, you end up competing a bit on location, and a lot on customer service and loyalty at that point.

Customer service, quality, friendliness, local community connection. You know, we say we're fast, fast, friendly, and close to home. So, you know, huge focus on quality. Our produce standards are extremely high. Our meat standards are extremely high. And we've kind of built a reputation on that. And there are people who will come do all of their perishable shopping with us, you know, they'll buy their produce and their meats from our stores and then hop in their car and go down the road and try to find the best deal they can on kind of the center store commodity items. And that's— we're happy to have their business, but ideally we're getting the whole basket. Which is what we're always striving for.

Yeah. Well, and if, you know, I have buddies that are in the grocery store business, so the, you know, I've always, I've always been told kind of the stuff around the outside edge of the store is the stuff where you guys really make your money. And there's a reason the produce aisle is the first thing you see when you go in. Yes, those are the higher margin things. Whereas, you know, if it has Kraft on it, you're probably not doing very well. Is that true?

It's very much true. And a good way to think about it is If someone's buying their produce from you every week, that's a great customer because produce is one of the few items in the store that doesn't hold. You know, you can throw meat in your freezer, you can throw— you know, even dairy will have a month shelf life on it sometimes. But your produce, you gotta pretty much use it in a week, otherwise it's turning. For most produce, you know, there's stuff like potatoes and stuff that'll last. But, uh, so if you have a solid produce base, you— it turns into frequent shoppers. And, you know, they're people who care about quality and freshness. And those are the customers you want.

Yeah. So you have produce in terms of major categories, you have produce, then there's the dairy products, which is cheese, milk and stuff. How do we— how should I think about, you know, visualizing what a store looks like in terms of what you're stocking?

So I'll break them apart by like accounting and labor departments. So you have your front end team, which is kind of like your cashiers, baggers. That's one labor department. The next one would be produce. Uh, the next one would be, uh, deli kitchen is under one umbrella. So the deli team that does your cold cuts is the same department as the kitchen staff in the back. And then bakery is a separate, very small department for us. And then grocery, frozen dairy is under one labor GL account, even though we kind of differentiate the staff under that. And then you have meat and seafood under one. And yeah, I think that's it. I got all of them.

Yeah. And then, so like looking at each of those categories, which ones are the attractive ones to be in that business and which ones are kind of the loss leader? So is it, you know, I talked about before, like the Kraft mayonnaise is probably not a high margin thing for you, but the—

but the—

yeah, go ahead.

I'll give you a statistic. So not a statistic, a sad reality is what Walmart often sells their Hellmann's mayonnaise for is less than our cost.

Wow.

So, you know, if you're buying direct from Kraft Heinz, or whoever the major CPG is, by the tractor-trailer load, and you're self-distributing, you get incredible pricing, you know. So the equivalent to that would be like our wholesaler. So they need to make money in between on that, you know. We don't have enough volume to buy tractor-trailer loads, and we can't store it, we can't warehouse it. So we have kind of just come to the realization that we can't compete on price, but we can compete on everything else. And we're going to be fair and we're going to charge our normal margin. But we just simply cannot beat a Walmart on the price of a major commodity like that.

Yeah. And I think, you know, I was talking to one of my colleagues about, about this interview before, and his question was— and I had an answer for him, so I'm curious if your answer is the same, the same one I gave him. But like, He was like, well, if you're not the cheapest, how do you keep from getting crushed?

Right.

So how do you, how do you, how are you thinking about that in terms of running the business?

Yeah. I mean, I think if you were to poll your friends and say, why do you shop where you do? I mean, for, I feel like for most of my peers, price definitely isn't everything. You know, it's, it's convenience, it's quality. It's how does it make you feel? Uh, there's food is a huge trust element. You know, if you eat something bad that wasn't handled properly, you could get sick, potentially die. So there's a big trust amount there. And then there's also the fact that things go wrong in our business. You know, it's not a widget that sits on a shelf, and if we don't sell it, it just continues to sit there and collect dust. There is a timeline that's always shrinking, and if you don't sell it, it is now garbage and it's worth nothing. It has to be thrown out, uh, or donated. And so price is definitely not everything, and that's where we can compete elsewhere. But I shouldn't say that because oftentimes we can be extremely competitive on meat or even produce because we can work with niche smaller vendors and get products in that people can't find elsewhere. And we can be very competitive on a lot of these subcategories and really drive some great sales through those.

Yeah, super interesting.

You asked before, what are the kind of the bread and butter departments, the best ones? I would really say produce and like deli kitchen is where you're getting the most margin out of it consistently. Meat would fall after that. Seafood, believe it or not, is one of the lowest margin categories in the store. Just because—

Why is that?

You have to have product in the case. You know, if your case is half empty, it doesn't look great, but you also, you have to have product to sell. But if you're not selling enough, you have to toss it. So it's this constant game of making sure we have enough, but you have to have a little extra just in case. And so you, you end up shrinking a lot in seafood, shrinking, meaning product that gets thrown out or, or tossed out.

Yeah.

There's, there's certain items that if they're closer to their shelf life limit can be cooked off and put in like the hot foods bar or something. But, um, yeah, that's, that's one of those tricky ones. And, uh, the margin has just never been there in seafood.

Yeah, no, I hear you. Well, I did read once the, you know, some of the stuff, which was the exposés on the fish we actually eat and that sort of thing. One of the things that they said as their advice was like, if you want the freshest fish in the grocery store, buy the frozen stuff because it's been frozen on the boat and do that versus a lot of the— and maybe this is wrong, but most fish gets frozen on the boat and then thawed when it gets to the grocery store. So you're eating frozen fish either way. The other thing that's crazy, and I know this is your interview, so I don't know why I'm suddenly interviewing myself, but the other thing that's crazy is all of our good fish, like we ship it overseas, like, because Americans don't like fishy fish. So it all gets shipped to Japan and places where they'll pay up for really good fish, which is exactly the unique smaller subspecies that like people view as like baitfish here, but are actually delicious.

Yeah.

Yeah. It's crazy. So if like, just kind of to ask a profitability question, so like, it sounds like produce number one, like what is, what is the average gross margin before and after shrinkage look like on produce for you guys?

I would, I would actually say like, uh, deli kitchen, like deli prepared foods are number one. Those are probably around a 50-55% margin, gross margin. So that's before your labor, obviously. And that's where you can be unique and different and really create value, which you would— it's just more similar to like a restaurant, you would say, you know, restaurants typically operate around a similar margin to that. And you're offering convenience there. Same thing with like our hot foods bar. So we, every day of the week, we kind of have a set menu for hot foods that people can come and buy. And that's a a great high margin category. Actually, in one of our stores, our Watertown location, our largest store, our probably, I think it's a 10 or 12-foot-long hot foods bar section does like $800,000 a year out of this one little area. So it's like, it's probably one of the highest sales per square foot in the whole store.

Holy cow. And then, so 50-55% in the deli and that stuff keeps a lot longer, I guess, because it's salted meat and you also are cutting it on demand. So all that makes sense.

Yeah, so yeah, I'd say like the actual prepared foods, like, you know, the meatloaves and stuff we make in-house, the chicken salads, that type of stuff would be the highest. And a little below that, you'll have your cold cuts, you know, like your typical boar's heads, your hams, your turkeys, all that stuff. And then yeah, if we were to shift over to the produce department, they're running, I'd say, typically, it depends on the item. But I think, you know, we try to have produce closer to that 40% mark. Okay, you know, by the time the month's done, they're maybe in the high to mid-30s sometimes, but that's definitely a higher margin category. Grocery, dairy, frozen, all of that stuff, we're typically operating around a low 30s sometimes, depends on the category. If it's super price sensitive, a milk will be much lower, maybe in the high, high teens. Um, more specialty items could be in the mid to high 30s depending on the category. So there's a wide variance there. You know, even though grocery center store stuff isn't the highest margin percentage, it is our highest volume still as a category. So it does still make up the biggest percentage of store sales. Interesting.

And then how does like frozen prepared do? And if you just said that and I blanked out, I'm sorry, but—

No, I didn't say that. That would fall under kind of the grocery, frozen dairy category. So kind of that, you know, right around the 30-35 mark for us. If you look at our total sales, our cost of goods on like an annual basis typically comes in right around 65%. So 35% gross is what we're shooting for.

35% gross. And then you have to pay everything else out of top of that. So that's great.

So yeah, so $0.65 of every dollar we're taking goes right back to our vendors.

Yeah, that's great. Well, not great for you, but great for us. Thank you. And then, I mean, in terms of how you guys are choosing what items to carry and vendor selection, like, you know, I assume you have a buying team. Like, how does, how does all that work and what's your process there to merchandise right?

So we're pretty lean and scrappy. We're at this company size where 4 stores is this like— I'll use one of Brent Beshore's terms, the messy middle. I think that's one of his. Yeah. And we're at this point of where we really need to, to kind of get to that next level, acquire a couple more locations to justify having that next middle layer of management. Because right now our like Grocery and Dairy Director, he's wearing two hats. He wears kind of that grocery and dairy buying hat, but he's also a store director of one of our locations. Our Deli Bakery Director who oversees deli bakery kitchen, she does that, but she's also the store director of one of our locations. Produce is currently our only one that is a centralized role, but he is also very much involved day to day in the operations. He's traveling from store to store and kind of that fill-in person. Especially with labor shortages right now, he's getting the guys up to speed and then jumping over to the next location.

Yeah. Well, the Messy Metal idea is interesting because I know H-E-B and other folks— H-E-B is the largest private grocer in the US, I guess, and Northern Mexico, based here out of San Antonio. But they've picked and chosen where they want to vertically integrate. So they own their milk plant, which you guys are way too subscale at this point to start doing that. Sounds like you're, you're in the, like, how do we add the third layer of management kind of scaling, whereas HEB's at the, like, I think 7 or 8, because they're the biggest employer in the state. Yeah.

And so we, we're in an interesting spot because, you know, like, even if I'm choosing a new software company to work with, like, uh, say like a human resources software company, they want to lump us in with like an enterprise-size business and account level.

Yeah.

Which is typically some of the most expensive pricing tier, but we're really a small business that just happens to have a lot of employees. You know, we run very lean and scrappy. So that can be difficult sometimes. Like people will see our size and scale like, oh wow, you're a $50 million plus company. And you know, is that amazing?

They wanna sell you NetSuite.

Yeah, exactly. Well, and then, you know, if you were to kind of run down the whole, you know, financials, percentages, you know, if you got your sales at 65%, cost of goods, you know, the next big category is payroll around 20%, rent utilities 6%, admin 3%, supplies 2%, credit card fees 1.3%, marketing 1%. So industry, industry average net profit is typically anywhere from like 1%, you know, I'd say average performance, maybe a little higher now. To at the best, really, they're pulling in around 5%, maybe a little bit higher percent net profit. So, you know, we are typically in the 2% to 4% range depending on the year and what it looks like.

Yeah, it's really interesting. Well, yeah. And that's, that's actually, you know, one of the reasons H-E-B is so dominant here is compared to their public competitors like the Albertsons came to San Antonio and like they ran Albertsons and Kroger out of town, like they just ran them out because they were just willing to accept a lower, a lower return, uh, and think longer term than those guys, which is— so I think that probably surprises people. You just did the math for us about how grocery— like, it looks like you're doing— I mean, you, you kind of told us you're doing 4 stores, about $10 million plus per store, so you're a $45, $50 million business. I think people would be shocked when they look up and it's not, it's not like a $50 million software business or asset management business or something along those lines. Yeah.

And I've tweeted before, I said, you know, One of the best ways to make money in the grocery business is to own the real estate that your stores are on. Because if you're paying yourself that $200,000 to $300,000 a year in rent as equity you're paying to yourself, that's just a total game changer. So I've grown up with my father and grandfather saying, "If you ever get the chance, you've got to buy commercial real estate," because they never had the opportunity to. In all these years, it never worked out to buy any of our locations, even though they wanted to for one reason or another. And my father's always said, he goes, "I'll know so many guys that have like one store and they've been paying rent to themselves for 30 years." And he goes, "They're just crushing it because they have this huge margin of safety." And in addition to that, when you need to do a renovation or take on more debt because there's real estate involved, your terms are just dramatically better. You refinance the whole package. Whereas we're just an operating company.

Yeah, well, the, the number of times we look at some guy who's retiring, who owns his business on Acquisitions Anonymous or other podcasts, which has much more attractive hosts than me, by the way, so that averages out. But like the number of times we'll see a business where the guy's selling like some kitchen renovation business or whatever that's been doing okay, and he's selling that for $300,000, but he just happens to own the business that it's located in.

He's—

and he's owned that forever. And it's— he owns that. It's worth $3 million. Like the number of times we see that is like huge, huge. Yeah. And so that's really interesting. So your, your ancestors didn't decide to try to buy the real estate back in the day.

They, you know, for one reason or another, just never had the opportunity, whether it was, you know, the landlords that we've had over the years, they have their own long-term vision or this, you know, it's been passed down from family to family and the opportunity has just never been there. And the fourth location that we just bought recently, we were kind of tossed the deal from our wholesaler and we pushed as hard as we could to get to buy the real estate from him because the individual that owns the wholesale company purchased the real estate from the existing store was there and then he flipped us the operating company, but he wouldn't sell it because he's got such a sweet deal.

Yeah, interesting.

Yep.

So one of the things, and I'm not sure you talked about it, so we kind of broke down the percentages to where at the end, net profits 1 to 5%, 5 at the high end in terms of stuff. Did you also include kind of the upkeep and maintenance of all the stuff you're after doing? I mean, you have all the freezers, all those kind of things. Does that, that falls into, how much of a percent does that end up being of all the revenue?

Yeah, I mean, that would fall under the admin expense category. I don't have, you know, we spend way too much on like refrigeration maintenance and stuff because a lot of our equipment is old in our stores. We in 2012 were kind of forced to buy a store we didn't want to buy to keep an existing one. The same landlord owned both. It was a tricky situation with his family. And so we're like, "All right, we'll take on this store and we'll get it turned around. We'll get the sales volume to where it needs to be." And we pushed as hard as we could for 3 years. It didn't happen. Store was losing like $700,000 a year. We ended up closing it and just paying rent on the building for the last 2 years. Of the lease. And so that put us in a really tight financial situation up until just really a couple of years ago, paying off that debt from having to buy this existing store. And so we had to kick the can of a lot of CapEx, necessary CapEx down the road. So COVID was obviously great for the grocery business. And so the past year and a half, we've been spending a lot of money upgrading equipment, new cases, We're doing a big refrigeration rack overhaul shortly in one of our stores. And so that is a large part of it. And our maintenance costs on keeping this stuff up and running is higher than it should be because things break, you know, it's old equipment. There's a gas leak there, you know, it's not cooling properly. So we've got to send a guy up on the roof and put a sprinkler on the base of the fins because they've all been washed away. So I wish we had decades of profitability and growth, but we're, you know, really just kind of righting the ship the past, I'd say, 3, 4 years from the early 2010s, you know, from that debacle we had to get through there.

Yeah. And that's rough when it's like 25% of your business and you've got an albatross there. So totally feel you.

Been there.

Yeah. So we kind of touched on and I asked some questions about supply chain and stuff like that. I'd love to kind of double-click on some of the things there. So we talked about item selection. It sounds like you have people that are wearing multiple hats and some are produce managers and they're doing the same thing. Bigger chains have specialists owning each of those things. So could you walk me through what is your merchandising and buying process? How does that work in terms of if I see something on the shelf, walk me back to where it was grown in the farm? How did it get to the shelf?

So I mean, every department's different, but if you're looking at produce, you'll tend to have more secondary suppliers in the smaller perishable department categories. Produce we buy from our major wholesaler, but we also buy a ton from these secondary suppliers where they're going directly to market on our behalf and can source some great deals. One of our vendors, for example, is up in Boston at the Boston Produce Market every single morning and they're backhauling trucks and hitting stores on the way back from there and we're pulling stuff from them. So in terms of item selection, like how do we decide what new item goes into what category? It's often mostly due to wholesalers saying, "Hey, this is a new category we just brought in. It's doing great in another store. Do you want to try this at your store?" One great example of an item that we sell in the produce department, which is really a grocery center store item, is this this tortilla chip brand and it's like super low salt, kind of a niche brand. And but our produce director came across it and I think he brought it to the grocery guy and they're like, ah, we don't have space for this. So he's like, all right, I'm going to find space in my produce department for this. And he crushes it because it's this like unique item that's in the middle of the produce department that typically isn't there. So it gets a bunch of attention. And so he'll strategically do that. You know, he'll mix in different items. He'll bring in like a specialty pretzel brand and like put it under his department. And so that's just a unique thing that, that we'll do. But for like meat and seafood, if we're going to go on throughout the rest of the store, you kind of have your standard items. You know, your, all of your, your steak cuts, your roasts, that doesn't really change. I mean, if you look back in time, what meats people are eating kind of are what they are. You have your more package prepared items, whether it's specialty bacons or, you know, some new lard that's come in or some new smoked salmon variety. So we'll bring in new stuff that way. And it's, again, it's primarily driven by like wholesalers who have a new product line to bring on. But also at the same time, uh, we've come across products that we think are just great and we'll reach out direct. One that I'll actually take a lot of credit for is called Dots Pretzels. And they're these extremely addicting pretzels. You swear they're laced with like crack or something. I don't know why they're so good. It's like almost tastes like a Cool Ranch Dorito, but it's a pretzel. They're unreal. And anyways, we were the first there. I think they're a Wisconsin-based company. We were the first grocery store outside of Wisconsin to carry them. We were buying direct from them. They would like ship us, you know, huge boxes full. And we were actually looking at potentially acquiring an Ace Hardware franchise a few years back. And we were meeting with one of the Ace executives. And my dad opened his mouth and was like, oh, we got this awesome new brand. It's our number one new grocery product. It's called Dots Pretzels. And I see the guy take out a piece of paper and he writes down Dots Pretzels. And then like 2 months later, someone texts me a picture from a local Ace Hardware. They're selling Dots Pretzels. So, like, yeah, and Ace is a national brand. So like they went in and just like, this company is exploding now. And so I, we kind of take credit for them being so big.

Well, congratulations. Well, I mean, do you— you talked about part of the merchandising and the ability to have unique products being a strategic advantage for you, especially if it's not down at Walmart. You have pricing power, you know, with guys like DOTS or emerging brands like that. Do you ever try to say like, look, I want a 2-year 60-mile radius on this, or are you not big enough to be able to do that? 'Cause I know H-E-B and Walmart will do that stuff all the time to emerging vendors.

Yeah, we haven't gone that far yet, and it's probably, that's due to us not having the time to spend really negotiating great deals with smaller vendors. It just doesn't rank in terms of order of operations of importance. Again, because people are wearing so many hats, the, the emergent issue going on in the kitchen right now is just bigger and they've got to run and deal with that. And they can't sit there and, you know, have negotiations back and forth with these smaller vendors. We just don't have the capacity for it where we're at.

Yeah. Well, this kind of goes back to just your, your too, too big to be small and too small to be big. Um, this kind of, kind of thing in the middle. And then it's not like you're in a super high margin business where you're throwing off a ton of cash and we're gonna— I think we'll get to that, but where it makes sense to go buy, start buying up other stores to get the scale and that sort of thing. So totally, I get it. So, you know, what, what percentage of items come through distributors and what percentage come, say, directly from kind of the principals who are these— it sounds like there's these jobbers who are going to buy stuff and bringing you avocados or whatever from the produce market.

I, I would say 90% are coming through distributors. There are some— they're called DSD, direct store delivery vendors. But that's typically, you know, like Coca-Cola and Pepsi, for example, are DSD vendors. They're self-distributed, you know, their own brand is handling those. A lot of the smaller vendors like English muffins or various bread companies, they'll deliver direct. Certain chip companies, they'll deliver direct. But the vast majority, it's— yeah, it's probably close to 90% is through distributors in one form or another.

That makes sense. So, and then like It seems like some of those kind of direct store distributor folks, they're more common in certain categories than others. So you have like the Coca-Cola, Frito-Lays of the world, they're bringing you stuff. And I guess they're doing that because they don't want the distributors to take a cut. And then also they want to affect the merchandising of their stuff when they're putting it on the shelf and that sort of thing. Yeah.

And, you know, we've all seen consolidation in that space. Like, for example, we had this one frozen foods vendor called Dairy Farms. And that's where we got all of our Ben Jerry's ice cream from. They had kind of exclusive agreements with certain brands for a certain area that the distribution had to go through them, but they recently went out of business and one of our larger wholesalers just acquired that book of business just because there was no other route to get the stuff in stores.

Very interesting. I was curious your opinion, it's been making the rounds on Twitter, the Boar's Head brand stuff. I guess that's like For me, that's the only meat that's like the, that's a branded meat that actually everybody knows. And I guess there's, they, you can go and you can buy a route from them and that sort of thing. Um, curious your take on that, that business and how you think about them as a grocer. Do you carry that brand of meat? That sort of thing?

Yeah, we do. They are a great brand. I mean, they do an awesome job with promoting the quality of their product. I remember as a kid, one of their like radio and TV advertising campaigns was the tagline was essentially like, spend on food, save elsewhere, like choose quality when it comes to your food and your health. And so they just put themselves out there as like, listen, we're not going to be the price brand, but we're going to be the quality brand. And I think they've done a good job and they are extremely strict about maintaining that quality image. So much so that I'd say the past 2 years they've actually lost out on a lot of sales in our stores because About 2 years ago, we started doing a lot of pre-sliced deli cold cuts and stuff where we would slice it, package it up, and have it so people can take it and just walk out the store, which is very common. You see that all over. But Boar's Head would not allow us to do that with their products. Their products, they wanted that customer interaction over the deli counter and they wanted it sliced fresh and handed to the customer as they requested it. So we were only able to pre-slice all of these other brands. And, and convenience is a big factor. So they, I think that did hurt their market share. And they've realized that now to the point where they put this in one of our stores so far, they've actually paid to put their own grab-and-go cooler in. They paid for all the electrical work to go there and they have a digital TV screen above it and they have their own separate packaging for their own pre-slice program. So their meats can't be next to anyone else's pre-sliced meats. It has to be a dedicated part of the store. So they held off on allowing us to do that until they had everything in place to make sure their brand was like carefully curated and how it was presented.

It's totally fascinating because I mean, you go— your typical meat aisle is just white Styrofoam with the stuff on it and it could be chicken, it could be pork, who knows? But yeah, like it's fascinating that nobody else has managed to really create a brand around that space.

Well, so that's a deli item. That's not a meat item. Yeah.

Okay.

So it is meat, but it's a, it's a cooked, you know, ready to eat food.

Okay. Okay. Yeah. It's meat technically, but it's in the deli. Okay. But there aren't any other deli brands that anybody cares about, or are there?

Not, not that, you know, you could say Applegate is one, you know, that Applegate has their bacon and stuff, but their items interestingly are sold through our meat department because they, we bring in their, their items through our meat vendors. And so that's where it gets merchandise. So like, well, we'll actually have like, you know, Applegate selection of cold cuts, but it's in the meat department, not the deli department.

Interesting. Yeah, it's messed up. Yeah.

There's another random one like that too. Like there's this brand of premade mashed potatoes that sells exclusively through meat vendors. So you can only find this brand of premade mashed potatoes in meat cases.

Fascinating. Well, and that was one of the things I wanted to touch on is, you know, I go into grocery stores, first of all, bored because I'm with my family and they're just like, go get some milk. So I go get some milk, but I'm paying attention because I'm a capitalist. But one of the things that's like a weird strategy that I see often, and you talked about it before, is like chips showing up in the wrong category, like the produce category. Like walk me through like what's, what is, what is going on with that stuff? I see there's some pairing where it's like, oh, I'm doing a margarita mix. I'll need some salt, but like. What is going on in your mind as a grocer when you're starting to do kind of weird stuff like that?

So if you were to go talk to our largest wholesaler and ask— I've asked him this question, the person who leads purchasing at our largest wholesaler, they're almost a $3 billion company. And I asked him, if I was a small food brand, what is the best way to go to market? And he said, work with a niche meat or produce supplier. So that is the best way to get introduced into a wide network, because if you try to go through one of these major kind of grocery product wholesalers, you are lost in the masses.

You are—

you don't get noticed. Whereas if you can get an agreement with like the store's primary meat vendor and you have this unique product that you can let the meat department sell and kind of, you know, find a way to merchandise it in this oddball department, you can stand out and you can really win. So, you know, you'll see like a certain pickle brand like Claussen Pickles that's sold as a meat department item because it comes through our meat vendor. So there's these somewhat strategic relationships that these brands will form with certain distributors. And I think it's a great way to win. And you may not end up being this huge, massive national brand, but it's an awesome way to get traction.

Super interesting. Continuing on the supply chain and the items. So like, if you had to pick the top 3 items that you're most excited to carry, like, I think we— I guess we talked about those. You love your produce department and you love your deli meat department, and the rest is like, oh man, I wish we could just be in the produce and deli meat business. Yeah. Yeah.

I mean, it's, it's very much, you know, an 80/20 business. You know, the vast majority— I shouldn't say that. The vast majority of your top movers are that like 80%, almost 80% of your sales. So your ground beef is going to dramatically outsell your cube steaks. Like, so ideally you would only carry these top movers, which is kind of the Trader Joe's strategy. You know, we have, I think last year we sold right around 40,000 unique items between the 4 stores. Okay. Trader Joe's in one of their stores will have 3,000 to 4,000 unique items. So they will have super limited variety, just top moving categories within a category, and they don't do any of the extra stuff. Costco's the same way. They only sell the high volume, top moving items. That's how they get the buying power and the shelf space.

And then, so we talked about kind of attractiveness of categories and products in terms of raw dollar sales, kind of like what are the top 3, 1, 2, and 3? And I think I know what number 1 is, but I'm going to keep my guess in my brain. Brain, like what, what is top 1, 2, and 3?

I mean, in terms of top dollars, it's actually the grocery department, the center store.

You know, as I mentioned that before, if there's one item that's number 1, like bananas. Yeah, I knew that was the answer.

In terms of volume.

In terms of volume.

Yeah, probably not dollars, but in terms of total volume, it's bananas.

Okay. And then what's number 2?

Um, oh man, that's a good question. I don't know that off the top of my head for the total store. I could pull it up very easily though. Yeah, it'd be interesting to see.

It's interesting. I mean, it's also kind of, you know, I wonder at what scale your business gets big enough to start to have somebody doing data analysis and reports like this stuff all the time. And maybe it's you.

Oh no, that is me. Um, the thing is with that, like, one thing to consider in the meat department is you could say ground beef would be number 2, it's probably number 1, but within ground beef you have All right. Now, you've got multiple grades of ground beef. You've got 85% lean, you've got 93% lean, you have a specialty brisket blend, you've got all the stuff. So, but if you were to take ground beef as a category and roll it up into one, it's probably the top dog.

This is a good interview because I've made you click on your computer.

Yeah, you got me. Sorry, I shouldn't be doing that while we're talking.

No, no, it's great. I mean, you can do it. I mean, the internet is interested in this stuff. It's as a KPI nerd, it's fascinating. So, so let's talk about these, the distributorships. It seems like those guys have gotten very big because that gives them a lot of buying power, which then they can then translate into better prices for you. So there's a lot of consolidation there. Is that like the McLean's of the world or McLain's, like, or who, who are the kind of big names in the grocery distributing business to small chains like y'all?

So our primary wholesaler is Bizzuto's. They're a kind of. A Northeast-based company. They're based out of Connecticut. They're doing close to $3 billion a year now. They were at $2 billion just a few years ago, but sales volume is up so much everywhere, they're going to be close to that number. The other big one is CNS. Those are the two competitors head-to-head. And then you've got the bigger ones like SuperValu. They acquired UNFI. So that is our big choice. And then if you look at a Stop Shop, or a ShopRite, you know, they are self-distributing to their own stores, right? So they're their own subset of distribution. But yeah, those are the two kind of big ones in our size space would be like a Bazudos or CNS.

So how does that— so it sounds like you've gone all in on Bazudos. Like, how does that relationship and contract work with them? Like, what's the deal for you and, and that sort of thing?

Sometimes we refer to it as the golden handcuffs.

Okay, tell me what that means.

So back in, I think, you know, the '60s up until the late '70s, they were— the family was a part of a group called Allied Grocers. It was a co-op, and the co-op actually went under. And we just so happened, our timing was great, they switched to Bazudos, I think in 1978. And as we were opening up a new store, it was like the week before the new store opened, Bazudos came in, like, retagged the whole store. And they didn't communicate with the team at Allied Grocers. So both companies' distribution sales teams showed up to the grand opening. It was like, wait a second, why are these guys here? So that was a rude awakening for the old wholesaler. It was a co-op group, but they went under shortly after. So we just got lucky with that timing. And Bazutos is great. It's still a family-owned business. My grandfather was actually very close with the founder. He got to know him very well over the years. And it was it was a very close-knit group of, you know, the retailers would go on vacations every year together, they would kind of share information. And they have definitely saved us multiple times in the past, you know, whether it was we needed a loan to cover payroll one week or helped us square away a new location. They have absolutely saved us. But at the same time, we've had to pay for that in terms of they are the master leaseholder on two of our stores. And they are also the one that flipped us our newest location and own the real estate there. So like when we upgraded one of our stores, we moved across the street to a bigger building. The landlord was smart enough to ask for the multi-billion-dollar company to be the primary one on the lease. And then we technically sublet from them, even though we have, you know, the ability to do our renewals and all that. So in exchange for our locations technically being on their balance sheet, we have supply agreements with them and have to purchase X percent of our, you know, of our sales have to go through them. So that's, that's why we call it the golden handcuffs, because they, you know, they've never held our feet to the fire on it. But technically, if we started to purchase from a different primary wholesaler, they could hold us accountable for it because we wouldn't be meeting the terms of the supply agreement.

Well, so to make sure I understand this, this particular wholesaler, by the way, that sounds like a fantastic business, but they are your master lessee on— lessee or property owner on 2 of your 4 stores.

Well, it's— if you count them owning one, it's 3 out of 4.

3 out of 4 stores. And you have a minimum purchase spend that you have to make with them.

Mm-hmm.

Which to some extent sounds like almost a guaranteed 100% because it probably doesn't make sense for you to work with 2 or 3 different suppliers because you're trying to run trucks all the time.

But they primarily operate in the center store, the kind of the grocery, frozen dairy categories. They do some meat, some produce, but very limited in that. So we have a lot of flexibility. With the secondary perishable vendors.

Got it. But you said that that center store stuff is the stuff where a lot of times you're buying it for more than Walmart is selling it for.

Yep. Oh, see, you learn quick. Yeah.

Well, I mean, I just, I've seen where the leverage is in this relationship and it sounds like you and me are down here on the short end of the stick on that stuff.

Yeah.

I mean, that was really interesting. It was one of the questions when I pulled Twitter to ask you, And when I saw the question, I was like, this is not a good question, but it would— the question was from Joe Pollin. Uh, and he said, when you open a new location, do the vendors contribute capital to make it happen? You know, it sounds like they— and you don't have to agree with this, but you could not, or whatever, but it sounds like they know they have you by the short and curlies and they want to make sure you stay in business and keep buying from them. And they'll help you out when it's time to make sure a store doesn't go under so they can keep their customer there.

Yeah, for sure.

Well, I definitely want to come back to kind of the business history and how you got involved, but we did get another question about kind of the supply chain. So you're dealing with an independent supplier, then there's like IGA, which is Independent Grocers Association, I think, and Associated Food Stores, which is another one. And we did a question from Twitter. David Dorr asked it like, tell me about the trade-off. Well, first of all, what is a grocer co-op and what's the trade-off there versus kind of your model at this point, which sounds like there is no trade-off. It's like, here's how it's going to be. Yeah.

I mean, a co-op is essentially just a buying group. So Wakefern, which is the ShopRite stores, that is a co-op. So all of the ShopRite brand stores— I don't know if you have ShopRite down where you are. They're more of a—

we have H-E-B and Walmart. That's what you get.

Okay.

Would you like H-E-B, Walmart, or a terrible Whole Foods? That's what, that's what San Antonio has. Yeah.

So A co-op is typically the group of stores owns the wholesaler and the distribution channel, and that's actually how Ace Hardware operates. They're a co-op as well. So yeah, could we join one of those? Yes, we'd have to rebrand and get a whole new way about doing things, but we also can't at the same time due to our supply agreements and just the momentum behind it all.

It's really interesting. Interesting. Okay.

Oh, by the way, I have the updated numbers. You're asking about top items, dollar-wise? Please. So the number one— I was wrong in terms of dollars. I was probably right in terms of dollars. Ground beef, 85% lean ground beef, is our number one total dollar item. That one item between the four stores for 2020 sold $319,000. Yeah. And that— so that is just the value pack size, the larger value pack size item. So if we were to add up all of the ground beefs together, like probably 10 above that is the same item, but not in the value pack. And there's another $150 grand. Number 2 to that is avocados at $221,000. Number 3 is strawberries at $204,000. Number 4 is bananas at $197,000.

Yeah.

Then blueberries and then Boar's Head American cheese is the next one.

There you go. What? Man, it was like I was prescient about that being a good business.

Yeah.

So then I actually, I watched the Boar's Head commercial. They're like, you could buy a Boar's Head route. And then I looked at it and the people are like, yeah, you got to drive around in a Boar's Head truck all day and talk to people.

And I was like, yeah, no, our Boar's Head reps, they put in a lot of work and they're, you know, they are afraid of the brand holders. Like, you know, they'll be like, guys, you're killing me. You can't be, you know, displaying the product like this. If someone comes in and does a store audit, we're going to get screwed. So they are very beholden to the parent company.

Yeah, well, and I think there's some interesting models like that around, like some of the tool distributors. I guess Matco Tools is one as well, where the guys drive around from place to place and sell tools. Yeah, I'm not extroverted enough to do that business.

Yeah.

Cool. So I'd love to switch gears. Definitely have more questions from Twitter. We're doing great. You're doing a good job, but love to dig into the people side of the business. So you mentioned you have 400 associates at this point. So can you break, break me down? Who, who does what and how are they organized?

Yeah. So thanks to you, we actually recently, I'd say probably 6 months ago, started implementing the EOS framework. So if we talk about it in that way, my father's a visionary. I am the, the implementer. And, you know, below us we have a finance team. We have kind of the store leadership team, which is each individual store director, store manager, basically. And then we have the marketing team, which I occupy that seat as the lead. And also the IT team, which I occupy that seat as the lead as well. So that's kind of our top-level framework. Sales and marketing are somewhat blended together, and we have a lot of people in the same seats. So like I was telling you before, the people that are in charge of the buying side of the major department categories, the produce, the grocery, dairy, the deli, bakery, and then the meat, seafood, those 4 seats, those people also occupy other roles. Whether as store directors or department directors. And if you were to go down the store operations side, below the store director himself, you have the department supervisor. So your meat, seafood one, your deli, deli kitchen one, your bakery, produce, groceries and dairy, front end, so on and so forth. And in terms of back office, we have 3 people in our accounting department. We have 2, one full-time graphic designer slash kind of our marketing lead and another part-time marketing associate graphic designer. Let's see, one person in AP, one person in AR, and director of accounting, myself and my father. And that's it for central office.

Yeah, it's great. And then so in the— if you could break down a single store, like how is a single store staffed? So you talked about there being a store director. Those are all reporting up to HQ, it sounds like. Who's underneath them, what do they do, how much money do they make each and stuff like that?

So it depends on the department. Your— I would say kind of the primary earners are your produce manager, your meat deli, or your meat seafood manager, deli kitchen manager, and your grocery dairy manager. Those are like your top tier salary roles. Your front end supervisor is typically a lower paid role. There's, there's no buying there. So it's more of just an oversight position. The bakery supervisor is a, it's a very small department so that that department doesn't justify a higher salary person. And the same thing, like we have a frozen dairy supervisor who really operates under the grocery manager. So that's more of like a secondary support role. Salary range for those positions, I would say, is anywhere from $50,000 to over $80,000 a year, maybe up to $90,000 at the most. Store directors, I would say anywhere from $75,000 to $90,000 for us. And yeah, the secondary department managers, I'd say their average is somewhere around the $35,000 to $50,000 mark.

Yeah. And then, so to make sure I understand, say you have a produce manager, is the produce manager managing both the merchandising of what goes in and hiring and firing their team in terms of who's going to be doing the stocking and all that kind of stuff? Or how does that end up working?

Typically, the store director does all the hiring and firing. They'll bring in the department manager if it's going to, you know, a person that they'll be working closely with for their feedback on the individual. But typically almost all the hiring and firing falls on the store director.

Yeah, totally makes sense. And then in terms of thinking about compensation models, you talked about range. Like, is there anything that you guys are doing to align incentives for those people with, with yours at HQ and owners of the business? Yeah.

So we have a bonus program. I believe store directors can make up to an additional $10,000 a year on that. And they're kind of the, the hierarchy goes down from there. I think the next tier is like $5,000, then $2,500. and that is based on what we call contribution margin. So contribution margin is your sales minus your cost of goods minus your labor, which are the primary buckets that they have control over. Everything else below that stack, you know, in terms of expenses, they really, they can't control supply costs. They can't control the electric bill for the most part. Yeah, turn the lights off, but you know, so that is what they are judged on primarily is the contribution margin per department. The store directors judge based on their contribution as a whole store.

And then are you guys doing monthly P&Ls per store, quarterly? Like, how does that get computed?

Yep. Yeah, we do monthly P&Ls. Their bonuses are paid out quarterly, though.

Interesting. Okay. And then on a day-to-day basis, like, how, you know, what does your POS look like? Are you guys getting live data on, on that sort of stuff, or is it, you know, how sophisticated have you become?

Yeah, so I work very closely with our point of sale software company. I was actually a consultant with them for a number of years, helped them design a handful of new loyalty program features. But yeah, it's— I'd say we are using the most sophisticated solution that's currently available for our industry, and it is a beast of a software program. And there are so many variables, there's so many different things that this touches, and it's mission critical. You know, if something goes wrong with the point of sale company, you can't take dollars in. So it's, it's extremely important. You know, when we had 3 stores, when we first bought, went to this software company, I think in 2016, at the time it was a $300,000 purchase for hardware and software.

Yeah.

So it's a big expense. So, you know, roughly $100,000 per store at the time. But yeah, so that's absolutely mission critical. And we do get absolutely get daily reports. So I'm seeing sales figures daily. Labor figures weekly, and then the monthly P&Ls.

Yeah, that's great. Cool. So I'd love to, if it's all right, love to switch to some of the market stuff and also the questions that I got from the, from the Twitters. There's some funny ones in here. So cool. So just kind of jump through those if that's all right. And then love to talk about the market and then where you see things going. You know, one of the— Marcio, who's out of Florida, I think, asked about competing with the big guys. And I think we touched on that a bit. It's interesting to— you remember your answer. Was there anything I didn't ask about that? But it sounds like location's super important and also being in the right segment is why you can survive against Publix or Kroger or HB or whoever.

Yeah. And there's something to be said where there are larger competitors where you're happy to compete against them because they really just don't do a good job, but they occupy the space in the town. The Stop Shop down the road from us in one of our towns does over $1 million a week. And we pick up their slack all the time because they just don't do a good job quality-wise. And so we're happy to compete against them because if an H-E-B or a Publix were to come in, a truly incredible operator, they'd probably be picking customers off from us. So there's definitely some benefits to having a large but not so great neighbor.

And I mean, if you think about nationally, I guess grocers talk, who are the guys reputationally that are the one or two like, "Oh man, those are great operators." Well, Wegmans is the top for sure.

I mean, and they're still family-owned, which is incredible. Market Basket does a great job, another independent. In terms of the larger multi-state ones, Publix is at the top, H-E-B's at the top. Yeah. It's You know, there's, there's great ones all over. There's a lot of awesome small microchains in California. There's one called Nugget Markets. They run— they were, they were neck and neck with Wegmans for like best place to work for a number of years as a, as a relatively small family chain with just a small handful of stores. So those would be my top.

But as you think about where you are today, I noticed your EO banner in the background. So kudos to you for being in a growth mindset and being part of that. But if you think about where you are today, versus kind of that aspirational level of operation? I'm not talking about it just in terms of size, but just that level of operational excellence. Like, what were the 1 or 2 or 3 gaps that you see between where you are and where they are? Or maybe you think you're like A-plus Wegmans, but just a smaller scale.

Yeah, I mean, for us, it, it's definitely that middle layer. And, you know, we're in that messy middle again where it makes sense. We either have to grow, we have to shrink, we have to go down to 1 store, we have to get up to like 10 stores. And so, you know, the trouble for us is it's the growth is it's not like, you know, you can go out and say, I'm going to go put a new store in here. It's very opportunistic when a person is ready to sell in a town that works with your model. So the one that we bought in 2019, we weren't expecting to buy it, but all of a sudden it became available and it was now or never. So the growth part is tricky. So it's a little bit of a waiting game. But for us, there's a ton of opportunity on the back office side. Our accounting operations are not efficient as it should be, and that's a big project I'm actively working on. We're doing a ton of accounting automation, and there's going to be a bunch of efficiencies to be gained there. And, you know, I'll make a comparison to the storage business. When I bought the self-storage company in 2020, the previous owner was paying to have a staff member there at all hours of the day to sell $2,000 worth of boxes a year. But he's got a $40,000 employee to sell $2,000 worth of boxes a year. So I said, well, let's just not sell boxes and we don't need the $40,000 employee. So with us, there's some efficiency to be gained in the back office. Right now we currently bill out close to $200,000 a month in house charges. And I'm very close to saying we're not going to do house charges anymore.

What's a house charge? Oh, that's like a—

You send a credit to a customer. Yeah. So they can just come in and say, I'm house account. XYZ. And, you know, we send them a bill at the end of the month.

And yeah, what is it, 1952? I didn't know they still did that.

Yeah, we have a lot of legacy customers. And, you know, that's one of those things where I've just been reviewing all this stuff and like, just not worth it anymore.

Yeah.

Why have the extra administrative layer? And it also hurts cash flow. We had to now wait a month for that $200 grand versus getting it up front.

Yeah.

So what are the things I'm looking at?

And that was— you just hinted about one of the things I wanted to touch on. So, you know, this is extremely low margin, high like asset, high turnover, cash flow. I mean, and you have a— you do not have a negative cash conversion cycle, right? Like, so like, how are the businesses financed? How are you dealing with, you know, making sure that you don't end up in a slow week out of cash and that sort of thing? Yeah.

I mean, we have usually a minimum of— like our largest wholesaler, we have 2-week terms with them. Most people are 30 days, some are a little more, some are a little less. So we're getting paid up front for the groceries and then we have to pay them a few weeks later. And there's that fine line. We maintain around like $1.6 million worth of inventory on our shelves at all times. So another project that I'm deep in the weeds on is our perpetual inventory for the center store grocery, dairy products only, where we know I can tell you exactly how many of X item we have on the shelf at this time. So the first part was identifying those items. And then phase 2, which we're working on now, is setting up suggestive ordering tools to make sure we are not overbuying or underbuying on certain items because we're trusting a human right now to have their head wrapped around roughly 20-something thousand items, it's just a nightmare. So we're applying technology to that problem to assist them. It will never be automated, but it'll be assistive.

Super interesting. So the other thing that a lot of people were curious about is just the impact of shrinkage, which is theft and breakage. So what is that as a component of your business and how do you guys think about it? It's tough to manage.

I mean, it's estimated industry average around 2%. So there's no way to know for sure. We call it, we inventory adjust out known shrinkage, and that's more of just a reporting number. So it could be a couple thousand dollars a week of items that are either expired or out of code, out of code meaning they're past their sellable date. Certain items we can, if we Overordered on turkeys for Thanksgiving and we, you know, they've been out for sale and now there's a few weeks left on their shelf life. We can then freeze those and then, you know, thaw them as needed and cook them off throughout the year in the hot foods bar. So there's ways to repurpose and sometimes you actually really win in that regard. You take an item, you know, as a frozen turkey, which you're making next to no margin on, you know, selling it as a retail item for Thanksgiving. And then it gets used in pop art throughout the year and you're making a great margin on it. So sometimes you win. But, you know, a good way to think about— like I saw one of the questions on Twitter was like someone said, you know, my wife wants to know if there's really that much ugly produce out there or something. I thought that was funny. Forget who said it.

Is that ugly produce thing totally a scam? That's what I was convinced of. I was like, if you want some ugly produce, just go to the sale rack at Walmart.

Exactly. So there's, believe it or not, there's a lot of stores out there who kind of, you know, turn their nose up to reduced, like a reduced produce section. But we do it and it's a great way to help people out. Like you take something that, you know, a tomato that has a few spots on it that just doesn't fit our quality standards. Yeah, it goes on our reduced rack. And we'll bundle a few of those together and wrap them up and price them at a dramatically discounted rate just so that they're not being tossed. Sometimes the ugly produce will get used for the hot bar if there's, you know, a dish that it works with that day. But most of the stuff comes in really good, you know. Yeah, it is the exception, not the rule, to when stuff is ugly and has to be tossed. But even being tossed, like, all right, let's say you have an ugly melon that now becomes part of the fruit cups. You just cut the ugly part off. It's not bad, it's just dented on the outside, you know. Right. So there's a lot of that repurposing, and that turns into a much higher item. You're taking something that you know, you're getting your 30%, 35% on the shelf and now it's a 50% item as a cut fruit, you know, mixed fruit cup or something.

Super smart.

Yeah.

And it kind of hints into something else people started to ask about was like, you're seeing people, you know, you have high fixed costs, you have fixed overhead, like trying to use some of that overhead more efficiently. So, you know, one of the themes of people was asking about like, say, people in your situation licensing out their kitchen for ghost kitchens to use it, or trying to figure out ways to use their space other hours of the day? Is there any of that going on in your business, or is that still just a lot of hype on the internet?

Yeah, it's a lot of hype. It's much easier said than done. Our kitchen is going from when the store opens at 7:00 AM, sometimes 6:00 AM, getting ready for the day, and, you know, they're cleaning up in the late afternoon, 4 or 5 o'clock. So are we going to bring someone in for 3 hours from, you know, 5 until 8 when we close? And then, you know, it just wouldn't— it wouldn't work for us.

Yeah, makes sense. And then the other thing going on is just this, the e-commerce push, curbside. And one of the questions was, is like, how is this so expensive? By the way, I've asked this question of people in another grocery business, but curious your take. On how it's being run so cheaply at this juncture for some of that stuff?

The reality is a lot of store owners are looking at it as just a necessary evil right now. And they're saying, you know, yes, I'm making a lower margin on these sales, but at the same time, you're getting the full basket from them on average. So the average online order for us is $150. The average in-store order is around $30. So you're— the people who shop online, they're not getting a few items, they're filling their cart and they tend to be great high-margin customers. So that is a way you can justify it. And also typically a store that launches online, if they're in a market that doesn't have much access to online grocery ordering around them, it's a great way to steal customers from your competitors.

And then what is your thought on— so it sounds like there's, there's two options for e-commerce where you're concerned. There's number one, which is you do it all yourself. They come to your website, do curbside, or maybe you do delivery. And then there's the other option where a Shipt or an Instacart marks it up, comes and does the shopping, and you have nothing to worry about on all that. So what are you seeing with trends with that and how do you feel about each of those options? Yeah.

So just to step back in time, I think in 2012, I was the first independent grocer to have a conversation with Instacart. Back then, the founder, Porba, would get on the phone with you and do the demo and At the time, I feel like they promised us the world and said, "Oh, they'll always be your customers. You'll have all the data you want." And then some time went by, we finally said, "All right, we'll move. We'll commit to you guys and start going down that road." And then raised a bunch of VC capital. And then the tune changed. You couldn't get ahold of the people at the top anymore. They essentially became like ghost shoppers who would come through your store and you would never know who those customers are. You can't remarket to them. They are Instacart's customers. And now if you go on Instacart, you look, I mean, it's just as easy to shop one store, click a button, and then you're shopping the competitors. And you can very easily click back and forth and compare prices. And if you're online, there's— you're not seeing a quality difference. So I think it's a great way to lose market share. And some have referred to it as kind of a Trojan horse, you know, oh yeah, come on, we'll make it super easy for you to get online. So we ended up going the opposite route and the much harder path of doing it all ourselves. and the software solution we're using is through our point of sale software company. But we have been responsible for the vast majority of images, all of our item descriptions, item locations. We do all of our own picking. We do all of our own curbside pickup, all of our own delivery. And it is definitely way more of a headache. It would've been much easier to go with an Instacart, but I wanted to own that relationship end to end. And there's many more software companies coming online now. I talked to one recently, talked to the founder. His website was called Homesum, Get Homesum, and they essentially provide the same technology stack as Instacart except it's white labeled. So they have the gold standard database. So the beauty of them is, you know, you can take your item file and say, here's what we sold in the past month. Just send them a CSV list of your UPCs and they'll get back to you and say, all right, we've got 90% coverage for images and descriptions. You guys don't have to do a thing to clean any of that up. We will send a photographer out to your store to gather the remaining images that you don't have, and we'll get full descriptions for you and we'll have you online. 2 weeks, and you can have that site up and nobody will know the difference that it is not, uh, you know, it's going to be on par with Instacart in terms of like site usability and stuff. So we're looking at them as well. Uh, another friend of ours who has stores in California, very, very high-end, top-tier stores, recently switched to them. And so we're actually looking at that as well.

Are there any other kind of technology shifts and stuff that you're, you're seeing that you have an eye on or, or want to adopt in the future besides that?

And the big one for us was the perpetual inventory. The vast majority of independent grocers are not doing that at all. It's more common in the natural organic space, like your small little granola-type store that's on the corner will maybe be doing that, but it is extremely uncommon in the traditional independent grocer space. So that's been very powerful for us. We're looking to expand that. In terms of that, it's, it's really kind of the add-ons that come with the point of sale stack, whether it's the loyalty program offering that we have. So like we have a points-based program where people get 5% cash back on select categories throughout the store as they shop. And once they reach $5 in value, they can redeem that on anything within the store. And that acts as the reason to associate yourself with the transaction. So if you just go and shop at a grocery store and you don't identify yourself at the register, you're not a reward user. They have no idea who you are. They have no idea your spending patterns. There's some companies that can kind of track credit cards and pull database and that, but it's not very accurate. So the loyalty points serve as our reason for customers to associate themselves, give us their email address, and allows us to kind of recycle the marketing campaigns. We send a weekly— I send a weekly newsletter to our customers that I write. Myself. I actually have to write that tonight. Um, goes out to over 20,000 people, and it's, you know, usually a quick story, or, hey, this is something new and exciting, and, uh, like, here's a link to our sale flyer. Don't forget, you can order all this online by clicking here. And that's been extremely powerful because we used to spend well over a quarter million dollars a year on print advertising, and now we spend zero on print advertising. It's all, you know, we've shifted those dollars to hiring in-house graphic designers and doing it all ourselves.

Yeah. When I'm interested in your perspective, you talked about working tonight on the newsletter. I think people don't understand how hard grocers work. Like, like I, you know, I have friends in the business and those guys are working all the time. Like it's— and you kind of hinted at that. Like, what— why is that right for you? Why is that right for your family? Like, how do you think about it?

Uh, I mean, for us right now, it's really all we've ever done, so it's just kind of inertia. But, you know, my department managers work way harder than I do. You know, they have to check their email, but they also have to get the stand filled every day. I'm not out there putting products on the shelves. I'm kind of like the Wizard of Oz behind the scenes connecting all the dots. But yeah, I give our team a lot of credit, and I've said many times, like, If we had to start from scratch today in this business, you just can't do it. Like, we exist due to the momentum that has been built in the generations of people that are working for us. And when new people come on, they— a lot of the learning is just through osmosis. This is the way we do things, the culture that we have, and it's just that flywheel that keeps turning.

Yeah. Well, and you're, you're not an old person like me. Like, why, why do this as opposed to go do something on your own? I know you're doing the self-storage on your own, but You probably had choices.

Yeah, it's a great question. No, I do. And I could make more money working elsewhere full-time. And, you know, to be honest, I make more from self-storage right now than I do from the grocery business. So yeah, it's—

Nick Huber is happy for you.

I know. I owe a lot of that to him. I've learned a lot. A lot. He's kind of been my mentor at a distance. We've become friends over time, though. And, you know, that doesn't include like in distributions and stuff like that. But so it's a good question. And I think for me, a lot of it's legacy. Like, I'm very grateful for having had to have worked this hard and the lessons learned from it. And I had— we had our first son in December of this past year, and I want him to kind of have that experience one day. And I just think it's a You know, it's a great thing to go through. And, you know, yes, the grocery business is going to be dramatically different 15 years from now when he starts helping out or whenever that point is in life. But, you know, we'll be, we'll be ready for it when that time comes.

Yeah, that's great. Yeah. So a couple, couple more questions that I know we're running out of time. So thank you again for doing this. But kind of, you know, you're doing EOS now, which is the Traction methodology. So you probably have a 10-year vision, like where, where do you guys want to go with the company? What's your What's your big goal for, for the decade from now?

Yeah, so for us, it's, it's kind of that strategic acquisitions. And one of our big— we don't, we haven't kind of, we haven't set the 10-year one, but like our 3-year vision is at least one more store in a centralized commissary. So we are, we have 4 stores making, uh, chicken salad 4 times, you know, every day in all stores. So one of the big opportunities is to centralize all of that production and then self-distribute to those locations. So that, that is going to be a huge win for us for all the prepared foods, the baked goods and whatnot. Yeah.

Super cool. Well, and it sounds like based on the way the, based on the way the other shops, stores like y'all's come on the market, it could be tomorrow. It could be never. Um, so it's kind of life, you know, very Forrest Gump. You never know if you're going to get a call from the, from the supplier saying we got one for you. So super cool. Well, this has been awesome. Totally fascinating business. And definitely gives me a ton of color knowing a bunch of people in the super regional chain. Now talking to you kind of in the neighborhood, you know, the subscale kind of chain. So in closing, love to just hear from you. You know, there's— I get a lot of listeners for this and they're growing every day. I hope that's a good thing. And, uh, love to hear how I or the listeners can support you, follow along with your journey. What, what can we do for you?

Yeah. I mean, if you want to follow along, I, I, uh, Twitter's a love-hate relationship, so I'm on there and I contribute, but it also is a major distraction. So sometimes I'm like, why am I doing this? But it's addicting and I've learned so much from it. I would never go back. And the network people I've met have just been incredible. So it's totally worth it. But in terms of giving back, the one organization that I'm giving to this year is the Ronald McDonald Foundation. My cousin recently had a pretty traumatic childbirth, and her, you know, within a few hours after her daughter was born, she had to be transferred to ICU. She was intubated for 2 weeks, and she was at Yale New Haven Hospital. And the Ronald McDonald House, which is a nonprofit that will put families up in these houses right next to the hospitals to be with their children or family members who are in a tough situation, at zero charge. It was just incredible and just an absolute lifesaver for them. So that's where, that's where I'm giving back this year. And the good news is her daughter's made a full recovery and she's doing great. So, but that, that organization really meant a lot to the family.

Yeah, that's super cool. Well, thanks. And, you know, I hope folks support that and I will try to do so too. Yeah. So, dude, great job. Thanks for doing this. You know, we talked before recording about going super deep on stuff because that's what the listeners keep asking for. And it was fascinating. So great job.

I know you had a lot of fun. You asked some great questions and I love your energy and excitement for all this stuff. And I enjoy how you have your hands in so many different things. I think that's what makes you so much fun to follow along online as well.

Nice. Yeah, well, I have some secrets. Actually, I do.

But you share everything. Yeah.

No, I mean, unfortunately, like on Twitter, like there— and I know people think that this is like a scarcity mindset versus an abundance mindset. But like, there are just some things in business like you can't like tweet or like educate other people on because especially like if you're dealing with a finite global resource, like, like firearms, I mean, that's not a— I mean, I'll tell you whatever you want to know about firearms. There's very little, little there because it's a regional business. Same as like sharing your learnings about Connecticut self-storage with some guy in Texas. Doesn't matter. But like one of the businesses I'm in is a serial acquirer of global businesses, like software companies. And it's like, I— people are like, how do I do this? Tell me about this secret or that secret. And I'm like, I can't tell you because I can't have you bidding against us on our deals based on what I've just spent 2 years learning.

Yeah.

And like, you know, okay, well, is that a scarcity mindset?

Maybe.

But like, there's a scarce resource that our whole business is built on, so I can't— I can't educate you on how to leverage it. Yeah. So that's— so there are secrets there. There's always secrets in Girdley world, man.

Yeah.

That's great. All right, man. Super good. We'll get this edited, get it up. And, uh, I know that the other business nerds on Twitter will go nuts about it. So great job.

Awesome. All right, man. Thanks so much for your time.

Sure.