TRANSCRIPT
Peter: Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age. Hey everyone, Peter Crosby coming to you from the digital shelf institutes remote headquarters in South Boston. Rob is still continuing his presumably nonviolent takeover of his in-laws. Actually, I don't know Rob, is that a den? An office, a library? What is, what is that?
Rob: So my daughter calls it the bookstore because she can just come in here and take any one of out of a thousand books anytime that she wants. It's a lovely room though.
Peter: Well, Warren peace is that, is that what she's working on right now?
Rob: Anna Karenina, he's only three and a half. War and Peace seemed like a little too much. So she'd started with the shorter Tolstoy.
Peter: It's always good to start with a Russian author just in these times. Speaking of these times, we're going to spend today's episode just freaking celebrating what's going on in manufacturing right now to respond to this to the pandemic, but also to respond to the different ways that brands need to connect with their consumers. And some need to do it because their categories are exploding and they need to let folks know what the supply chain looks like, et cetera. Some are are just going for brand conversations that help in this time because maybe their products aren't selling so much right now, but they want to be there for their, their consumers and their buyers. So there's a lot going on and we wanted to cover. And I think we're gonna find that a lot of these patterns that are developing are going to last and, and into the relationships that continue after this after this pandemic period that we're in. So, Rob, maybe a place to start is just, you know, so obviously with us, like what new habits are we developing? You know, what, what have you started doing that was not normally a feature in your life?
Rob: I normally go to the gym pretty regularly. I, there's a, there's a gym in the office building that we work and then there's a gym by my house. And so I'm a regular gym goer. Now obviously all the gyms are closed. Even if they were open, it might, it's probably a bad idea with social distancing to go. So I've had to figure out what a workout routine is at home. And I've, I've spent actually a fair amount of money on small home fitness equipment, additions to my inlaws, like a kettlebell, a jump rope, a TRX, things like that. So I could be set up and, and be able to stay fit for whatever the duration is that we're here. I think that actually probably fit home fitness equipment and sporting goods. It's gotta be doing quite well right now for the same reason a lot of people were at home. I see a lot of links that go through Slack that are all about daily workout of the day. And how do you work out without a jam and body weight, fitness and gymnastics, fitness and, and stuff like that. So that's what I've been trying to do is spend a little time trying to figure out how to stay
Peter: Fit without the gym. Yeah. I mean, my most profound new habit are Pringles. So my then my son, my secondary new habit in my secondary new habit. Then of course is also thinking about how do I keep fitness going. You know, I've talked a bit before on this podcast about, you know, I'm a regular Barry's bootcamp person and I, I gotta say in terms of celebrating brands, like what Barry's has done is, you know, three times a day they have live workouts on Instagram and then they're, they're recording. But what they did smartly as a brand looking to make some money in this time is they packaged up kits of bands that you can use during some of the workouts. And you could go on to, to Barry's bootcamp.com or whatever, various.com and buy that kit Barry's branded that they send to you that you can use during these workouts.
Peter: So a really smart way of one providing value of community at no cost. And, and you Rob you worked out with my trainer that I work out with some and one of my good friends, Brian vole ne Bron core fitness. Yup. So he started doing you know, online training and you can use through, he's using mind body as his app and you can go on for seven bucks. You get access to a zoom workout. That's a killer, like 45 almost an hour long workout with essentially body body weight stuff and, and so it's great just to reconnect with him. And, and I know a lot of the people that, that he uses a Bronco fitness, so that was that's pretty cool. You should do that cause he would love to see you on that. I dunno if you do those sorts of things you know, sort of live led workouts.
Peter: But if fitness time is me time yeah, you don't want other people, you don't want to zoom. Yeah, that makes sense. Mmm. And then probably just to balance all this out. Probably another hobby, hobby or habit that I had done some of prior, but now because I'm not getting up at, at, I mean I'm getting up at the same hour, but instead of commuting or, or going into berries, I'm meditating in the mornings, which is really great. I've been using insight timer and my own stuff. So that's been super helpful. And I'm hoping that will be a habit of making time for that on a daily basis that I'd sort of let fall back. Okay. You're not stocking and hoarding toilet paper as a hobby? No, I don't get that now. Maybe it's cause we did like a long time ago we did a Costco thing and got paper, you know, toilet paper in that sits down in our garage and, and there's only two of us, so it will last us forever. We're not a family of seven or something, but the, the run on toilet paper is one of the more baffling, baffling things to me. Yeah. So let's, let's start with, with our first topic here, which is of the short term
Rob: Winter's here, driven by the hoarding in, in, in this time. And these are in the, in the theme of today, we've got sort of short term changes and we've got longterm durable changes that are going to be caused by COBIT 19. And in the short term there's winners that are just winning for demand. And then there's manufacturers that are doing hard work that should be celebrated to help the country respond to the virus. And the winters that are better just winning due to demand are, are folks like Clorox or Gojoe or diversity that are, that have personal care goods like PRL hand sanitizers, cleaning equipment that I obviously it's in very high demand right now. It's hard to know how much of that is demand is going to stay up relative to baseline after this thing is over. And then there's another, another brand which I quite like. I think it's an acquired taste though. I first loved it because of Monte Python skit is spam, which is up 50%. I mean, I'm a, I'm a spam fan. I do find it hard to believe that spam is going to be up 50% after everyone goes, goes to work. Like you're not going to eat spam in quarantine for two months and then afterwards say, you know, what I want to do is just keep eating more spam the rest of my life. So one of the just not going to be durable.
Peter: I wonder like years from now the, the hoarded span that's still going to be in some people's cabinets and there'll be checking the date on the bottom. Like, can I still open this? Yeah.
Rob: Yeah. So there's, so there's, there's some of those winters and then, and then some of the other short term impacts where it's hard to see this stuff being durable, but it, it's inspiring. 3M is trying to produce 35 million facemasks per month. That's not easy to do. That's a dramatic increase in manufacturing capacity for one product that they're going to have to roll back after this is over 35 million a month. There's not an ongoing forever amount of face masks the world needs.
Peter: No, it really is kind of a war footing response. You know, you just, you just make the changes you need to make to get the equipment that you need. It's, yeah, it's a, that was a, an amazing story.
Rob: It's a, yeah, it's, it's inspiring. Then we have, and I honestly, I don't know enough about ventilators to know how difficult they are to manufacture, but you know, Tesla is reconfiguring its Gigafactory, which normally makes batteries in order to make ventilators a general general motors is reconfiguring its factories to make ventilators. James Dyson designed a new ventilator and Dyson is making 15,000 ventilators. And so this, this is not hard. This is not easy stuff for them to do. Right.
Peter: We designed that ventilator in like 10 days,
Rob: 10 days. Yeah. I mean, I the martyr than me. Yeah. Well, and that's what's interesting to me. I obviously I
Peter: Have zero understanding of, of tooling factory, you know, coming up with what does that, you know, the design. Then you have to think of the manufacturing process. You have to retool everything to do with like the,
Rob: The [inaudible]
Peter: Gathering of, of smarts around this stuff and, and the, the ingenuity it reminds you to sort of, you know, watch the movie Apollo, like the sort of what it takes for scientists and engineers to, to come up with a response in a rapid amount of time.
Rob: Yeah. Apollo 13. Amazing. Yeah. Yeah. I, you know, I think it's, I'm seeing some response in the media, which really irritates me where people take the, when it's when you've got lemons make lemonade and these companies are just profiteering and stuff like that. But man, this stuff is hard and I think a lot of businesses that are retooling to support the front line on the epidemic, they're not going to make money on this because cause retooling is expensive and then they're going to have to roll it back. And this is just a short term change. So another example of that hand sanitizer is mostly made out of alcohol. And so companies that use mouth alcohol as part of their manufacturing process can make Hannity's hand sanitizer and they can help out. Anheuser Busch InBev switching to make hand sanitizer, they obviously make alcohol demand for a lot of their products through bars, restaurants, cruise ships, whatever is down and they've got idle factory capacity. And so they can, they can switch to me, can't sanitizer. And, you know, people can be cynical of that move. And for me, I just, it's just hard for me to imagine them really making a ton of money on this. Like I think they're, they're doing it because their employees are wanting to help out and they want it. They want to make a difference in this, in this event that we're going through.
Peter: Yeah. I mean, if they were charging $15 a bottle for it, that would be one thing. But you know, if they're, if they're switching to do it to help with a need and they're, they're charging, you know, a reasonable market price for which I'm sure they will. Yup. Oh my gosh. Thank you.
Rob: Yeah. Also, L'Oreal, LVMH, you know, they make perfumes and perfume also is alcohol, so they've got the base capacity to switch over and make hand sanitizer. So they're doing that. Then you're seeing lots of textile manufacturers. So the gap and Canada goose are making scrubs and gowns for healthcare workers and patients. We're also seeing a Baal and branch out of out of New York making hospital mattresses. Restore global are making coveralls. Bauer, the hockey company is making helmets for face shields in order to make up for the lack of face masks. So they're switching from making hockey masks to making to making face masks for for healthcare workers. West point home. A textile manufacturer in the United States is switching to their textile manufacturing to making face masks. I mean, it's, I, this is just incredible the response that these companies are having in such a short period of time to help to help the United States spin up an effective response to this crisis. I agree. I agree.
Peter: So that's certainly some of the short term ingenuity and impacts that we're seeing out of it. Rob, like, you know, I've used, formed sort of a thesis of out of out of some of these business could pivot, excuse me, out of some of these pivots. You're also seeing
Rob: Things that potentially could become longterm habits? I think so, yeah. I mean, yeah, in general, my owl, the model that's been forming in my mind is that this crisis is going to accelerate major changes that were already underway in retail by maybe five years. And there's a, there's a great quote from an analyst, Seth Sigmund at credit Suisse, where he says, we see this unfortunate period accelerating structural changes in consumer shopping possibly by five years. And, and I think that's about right on. I mean, the consumers that haven't really tried clicking, collect, haven't really tried alcohol delivery and so forth. They're being forced to try it right now. One of the more expensive and difficult aspects of growing an eCommerce company is user acquisition. And right now the users are at home and they're very cheap to acquire because they're looking for the service. So drizzly.
Rob: For example, another Boston company, they do alcohol delivery. There are new user acquisition is a 500% right now. And the drizzly services is a great service. You're not going to order from drizzly once during this pandemic and then forget they exist. You're going to order from them and you've, you've already set up your account, you've already set up your payment methods and it's just going to be something that you do on occasion from now. And you might still go back to the liquor store. You might still go to whole foods and buy wine, but you're also gonna use drizzly as part of your shopping next. Now all of the retailers like Kroger and Walmart that are, have been working on click and collect programs for years now it's now it's big time. Now they're staffing up incredibly Walmart, tiring, 150,000 people to help with the click and collect.
Rob: And if you're used to now placing your order online, driving up to the store and having them place the bags in your trunk as a service. That's, that's a really great experience. And I got to imagine that a lot of that is going to be durable. So you look at the, the click and collect and digital ordering on grocery in the United States and let's say three months ago you had a projection on what those numbers would look like in five years. I think. Imagine if those numbers are like that in six months after the pandemic and they're durable and they don't go back to business as usual, like whatever the market share was on January one 2020 that's not what it's going to be on January one 2021 it's going to be five years of acceleration. So other, other, you know, other major here that I think that this is just going to really accelerate are the rise of dollar stores, the rise of e-commerce, the shift to click and collect from people shopping in store, the explosion of direct to consumer brands and you know, the frankly the, the, the slowing down of some traditional models like the department stores that have been struggling anyway the last 10 years.
Rob: So I think whatever you were, whatever trends you were expecting and whatever growth or lack of growth you were expecting of those groups in the next five years, no. If they're going to happen in three months.
Peter: Yeah. And, and I think, I think one to really, really look at is the explosion of DDC. And, and I think, or for that matter, I mean it could be D to B direct to buyer, right? I think more and more just to sort of spread the risk out among when channels go wobbly, whether it's you know, as you said, some, some retailers are gonna not make it through this period. Some retailers have proven in moments of crisis, like, like Amazon saying, you know, we're down to just shipping essential things and prime is going away. We're not selling a lot of products right now. So when you know that you need to diversify, one of the most important points of diversification is figuring out how to connect with your own buyers and consumers directly where you can and where it makes sense or to a very, at the very least, experiment with it. And figure out what those channels are. And, and I think we're seeing a lot of that happen.
Rob: Yeah. We're seeing some manufacturers. So the, the prime comment isn't that it's not that prime is going away. It's that Amazon is not ordering a lot of different types of categories of products right now so that they can focus on the high demand essential products to help the United States fight the pandemic.
Peter: Well, I w I just had this, this experience because while we were preparing to record today, I got jealous of your Yeti microphone. So I went over to Amazon to order it so that my, my audio could be as good or better than yours naturally. And when I went to order it, it is a prime item, but I wouldn't receive it until April 15th. So it's not that it's out of stock, it's that they are rightly so, I'm not complaining, but they are prioritizing shipping re-prioritizing shipping based on, you know, needing to get the essentials out.
Rob: Yeah. So, so I mean, Amazon is basically what they're saying is we're at logistics capacity. You know, they're hiring an a hundred, a hundred thousand additional workers and the demand has, it's not like
Rob: Gone up 2%, right? It's, it's gone up a step function. Their next earnings call is going to be very interesting to watch. I mean, I think it's going to be, I think that the numbers are going to be shocking where they're basically saying, we, we just can't ship everything we have right now and we don't even have the warehouse space to store the things that people want to buy. And so we just really have to make hard calls as to what we're gonna, what we're going to support or not. On the, I think there is a short term impact on direct to consumer companies. So we've seen some manufacturers invest in supplier fulfilled prime it w and you know, very, very aggressively in the last month or two because they expect the demand and the shift of Amazon's priorities to last for a while. And if people are unable to purchase your products because they're not being ordered by Amazon and you don't have an effective prime compatible backstop where you can ship direct to consumer, that means that you're just going to be, your top line is going to suffer for a short time.
Rob: So people are, people are investing in that and once you've invested in the ability to shift to consumer, then it's, it's, it's a lot easier to put more investment in, in your own direct to consumer brand and sell on marketplaces and experiment with Google shopping actions and Pinterest and shop on Facebook and all those other things that require that you have that own your own logistics capacity. Yeah, I mean it just for myself, I, I'm not one of these, I'm creating a star sourdough starter from scratch in quarantine. I've done sourdough for years and years. I love baking and now you can't buy flour on Amazon. It's out of stock in most grocery stores. And one of the, one of the major flowers that I use is from the King Arthur brand. What I think is a great brand of flour. And so I, I go to, I've never been to their website before, but I went to their website to see if I could order direct from them.
Rob: Mccormick recently launched an old Bay hot sauce where it was direct to consumer and in both cases I gave my email address to the, to the brand. And that's not something that under normal shopping conditions I would generally do. So the, there is this window right now where some of these brands that are loved brands and known brands can start building up a CRM asset of customers that are fans of theirs, where I don't know that, that that opportunity is gonna be there in six months. But once you have the list, then there's a lot of other things that you can do for the long haul, even after the pandemic with, with your key fans there. So I think there's a lot going on between Amazon and prime and direct to consumer, I think is all mixed in together, but it's all ultimately adds up to accelerating these major trends.
Peter: Yeah. And I, I think if, if listeners go back to a podcast we did with Mike emojis from, from good baby even flow, it's a great podcast to listen to somebody who is keeping his business focus on where the majority of his revenue comes, but has come up with a really great model for testing and learning with smaller sub segments or segments of their customer base that they want to see if they can win in. And it's so just a really good way of thinking about how you do this in a, in an agile way. So definitely take a listen to that podcast cause I think there's, there's some lessons in there. One of the things you were talking about with sort of the need for labor, like Amazon looking to hire 100,000 people read a Gartner report recently where they were covering what, what trends they've been seeing in China on the arc of the, the pandemic and earlier arc of the pandemic there. They were saying that restaurants and cinema chains, which obviously are suffering a massive drop in, in war. I mean they're closed, they're sharing their employees with with grocery and supermarket and other chains and like with Hema, it's a digital first grocery supermarket owned by Alibaba. So I wonder if we'll see that here where U S firms are sort of figuring out some sort of a, a sharing mechanism with with the, the grocery stores and, and online retailers that are in, you know, fast need of [inaudible]
Rob: Oh, the 10 is kind is a little weird because a lot of their, a lot of the quote sharing is happening within the same Uber gigantic corporation. And it's, it's, so, it's, I think it's hard. I honestly, in general, I think it's hard to make comparisons of China to the United States. The cultures are so different, the economies are built so differently. The logistics and retail networks are so different. But, but what I think the way that, you know, like a capital, a true capitalist country respond to these things is declining businesses, lay people off and accelerating businesses, hire people, right. And a lot of times it's a lot of the same people. So you see, Instacart is hiring 300,000 people. Amazon's hiring at least a hundred thousand. Walmart's hiring 150,000 and CVS is hiring 50,000. There's, there's a lot of numbers there. But even with that though you know, like let's say that all adds up to a million, million and a half, 2 million workers. Even with that, it's really hard to see to see that making up for the decline in some of these major service industries in the short term.
Peter: Well, I w we'll close, I think with some input from China that I hope might be transferable to to us from a Harvard business review article. They noted that only six weeks after the initial outbreak, China appears to be in the early stages of recovery.
Peter: Congestion delays currently stand at 73% of 2019 levels up from 62%, which indicates that people are starting to move around and good, the movement of goods is resuming. And we're seeing, they're starting to see real estate transactions move, which had fallen to 1% of 2019 levels, but have since bough bounced back to 47%. This isn't the best stat in the world, but coal consumption has recovering from a trough of 43% to currently a 75% of 2019 levels. So where they're at least seeing that the engine is starting to come back to life maybe faster than than anyone might have expected. So I hope that that trend happens here as well.
Rob: Foxconn is the world's largest manufacturer. They're their backup and running. Apple has said that instead of a June release of, of the next iPhone, it's, it looks like it's going to be a August. So that's a about a two month delay. So I, I think China coming back online is going to be huge for manufacturers in the U S who rely on it for supply. And it's also, you know, it's heartening that if this thing is, it's a two month problem, that's a very, very different picture for manufacturers and for retailers. Then if this is a six month
Peter: Yeah. And I think it's a two month problem when you, I mean, as you've pointed out, China is a different society and they've taken sometimes some really draconian measures to keep people isolated and, you know, just different, perhaps a more aggressive approaches to, to testing and isolation. But I think if, if we apply that in our version over here, and you know, they all talk about flattening the curve. I'm not an epidemiologist, but it does seem like those are the conditions that are setting up for a faster exit and resumption, but you've got to sort of stay, stay calm and carry on in the meantime. Well, Rob, thank you for dialing in from the library, the book, the book room, the bookstore, the bookstore in the Berkshires. And you know, as always, if any of you out there listening to us or enjoy our content.
