The Covid-19 pandemic has led to many consumers buying their traditional food staples via ecommerce, and once it's over, this shoppig behavior will likely be the new normal. As such, auto-replenishment technology solutions will not only help drive ecommerce supply chain efficiencies, but will also grow basket size and drive loyalty.

In this interview, I speak with Tom Furphy, CEO of Consumer Equity Partners, about the importance and growth of e-commerce in today’s retail environment, and how auto-replenishment capabilities can benefit retailers and brands.  Tom also provides some insights into technology's role in retail's future, and what strategic areas retailers and suppliers should be exploring for the post Covid-19 world. 

Consumer Equity Partners is a Seattle-based venture capital and venture development firm that focuses on retail and related commerce technologies. Its portfolio includes Ideoclick, an Amazon agency, and Replenium, an auto-replenishment technology platform. In addition to chairing these companies, earlier in his career Tom was at Wegmans, built a startup in Silicon Valley that sold to Oracle and then went to Amazon as VP, Consumables & AmazonFresh.

Click here to listen to the podcast (watch the video below):

PODCAST TRANSCRIPT

ECRM: Hey, everyone, this is Wayne Bennett. I'm joined today with Tom Furphy from Replenium. Many out there in the viewing audience may know Tom, but let me just tell you a little bit about him. Tom is a C-level leader with real experience in both online and brick and mortar retailers, has worked in private equity consulting and is a board member to companies in the industry. I'm real honored to have the conversation with you today, Tom. It was recently brought to my attention your company, Replenium, is in the auto replenishment application business, and I'm just curious to know a little bit about what is Replenium, how was it created, and what inspired you to do that?

Furphy: Yeah, thanks for having me, Wayne. It really goes back all the way to 2005. I was fortunate to come into Amazon and get to lead up all of Amazon CPG businesses. As we were building those businesses through the kind of mid 2000 decade, we developed a set of capabilities around shopping automation. So, think of things like subscribe and save, think of things like dash and then also the automated recommendations that happened on Amazon. These are a bunch of capabilities that are designed to not only sell things but to help people buy things, and that's kind of a famous Jeff Bezos quote. And so as we built these things in Amazon, we recognized that shoppers loved it. It became quickly, in a lot of cases, the majority of our business was running through these capabilities. Folks love to set it and forget it, know that Amazon is taking care of these products for them, and so we built a really big business. I mean, inside Amazon today, it's an 11 figure business.

More than $10 billion just in this stuff. So, at Amazon for a bunch of years building and running these things, a bunch of folks that were on the team there that built subscribe and save and some of these, as you know, as successful as this is an Amazon, the rest of the world should have something like this. We learned a lot from what we did there and then we set out and built Replenium to do what Amazon does, but ideally do it better and do it for everyone.

ECRM: Great. And so what are you seeing today, Tom, in terms of why is this now becoming so important to the retailers in the marketplace? Obviously we have a surge in online sales and it's going to transform retail at its core. But what are you seeing in terms of the trends for a replenishment application today now more than ever, and what is the business opportunity for that?

Furphy: Yeah. Today I think we have a few things and recently many more things coming together to make now the time for this. At its core, auto replenishment relies on machine learning. Auto replenishment involves a set of algorithms that work in the background that and they are smart enough to help shoppers predict and understand when they're due to replenish things. Just as an example, in a household or even for an individual, you can learn how much toothpaste a family should use based on the cubic centimeters of toilet paper it goes through. Now, if you're toilet paper hoarding, it doesn't mean you need to go toothpaste hoarding, but there's a relationship between these products.

So, if we can tell across a large number of customers that based on whatever toilet paper usage, we expect a certain type of toothpaste usage and then a certain type of deodorant usage and then a certain type of haircare usage, and we can begin through machine learning models over large amounts of data, to be able to determine when these things are due to be replenished if you put good shopper tools on top of that. So, creating good visibility for shoppers as to when this stuff is coming up, helping them push things out, pull things in, to be reimbursed sooner, giving them recommendations around products they shouldn't be using if they're not buying them currently from that retailer.

You can ultimately provide a lot of value for the shopper. I mean, when the grocery store or the center store of a mass merchant was devised decades ago, it provided a great service to shoppers. All these products in one place to enable them to walk up and down the aisles and easily fill their basket. Really what's happening now is machine learning is giving us this next generation of convenience for this type of shopping.

We can leverage this data to bring some logic around shopping for these things. We can save the wading through thousands of products to get to the products you want. We can, in a physical store and on an online environment, we can save you from scrolling through pages of search results to find the products you want or going back through your past purchases to find the products. We know roughly when you should be ready for that next stick of deodorant, and that deodorant products should raise its hand and say, "I'm ready to drop in your basket now," and you have a really easy capability to manage that.

We think that the time is right with all of these things coming together, and then of course with recent events, we're seeing even a further surge in e-commerce, which puts even more kind of burden on the shopper in their e-commerce environment, but also of course creates all kinds of strife and variability to the retailer. I've got these big amounts of volumes going through this new channel now. Well, the nice thing about auto replenishment is it enables you, not only does the shopper have predictability and can see out in the future of what they're going to be replenishing, but the retailer gets to see that as well, so it helps them with all kinds of things.

ECRM: Sure. So, Tom being on the forefront of the whole replenishment application, coming from your days at Amazon, what is the prevalence of order replenishment technology ability in today's e-commerce world?

Furphy: That's a good question. It's still quite nascent. Amazon, for them auto replenishment encompasses the whole range of things like subscribe and save, dash reordering, they have a dash replenishment service, with is IOT, right? You have Alexa voice reordering, you have Alexa reorder prompt. People probably don't even know that exists, but Alexa will remind you that you're due to replenish something that you had bought previously.

So, collectively, Amazon looks at all of this stuff together and it's suite of shopping automation or auto replenishment. Of those capabilities, on the market you'll see there's some level of product subscription out there. I mean, clearly something like Dollar Shave Club, if it's a purpose based, you know, a subscription platform, there's a bunch of those out there.

There are some retailers that have basic subscription capabilities. Sign up for a product, have it delivered to you on a cadence, and those are fine. That's all part of the larger equation. But really for auto replenishment, it's about enabling larger swaths of purchases coming into your home to be automated, to really relieve burdens. Dollar Shave Clubs is great because you know your shaving is taken care of, but you still have to shop otherwise for all your other needs, where auto replenishment enables you to shop for many, many needs with the same retailer if they're doing that.

So, it is still very nascent. I know from our standpoint, we've been building the technology for a handful of years, really just releasing it to the market now, and so while we don't see a lot of it out there now, we do see a lot of interest in a lot of retail adoption that's happening now. So I think if you look back a year from now, I think it'll be a best practice and a widely practiced practice across the better in class retailers.

ECRM: That's interesting, Tom. I'm curious then to know from where we are today in terms of usage of auto replenishment application or some variant of, what is the demographics, shopper demographics looking like as a pathway, as auto replenishment pathway of that consumer? What does that look like today?

Furphy: That's a great question, and I think that's one of the things at Amazon that most impressed us even in the early days of subscribe and save and ultimately replenishment, is it really crossed demographics, and that was, again, really surprising. There are a lot of entry points to it, like wherever you are and your life cycle of being a consumer, whatever your demographics are, you may enter through different places, right? You might be a new mom, you might be looking to solve diapering and formula needs and whatnot, and so this is a great service for you to get into that. But as a mom, while you're in there, you might realize, "Wow, I can get my beauty care through here, I can get my other personal care through here. I can take care of my home." Right? Getting things like floor cleaners and surface cleaners and wipes and all that stuff. Right?

So, you could be an older couple getting their coffee or maybe their vitamins or other kind of elder care items, because a lot of that is on regimen. You may be a diabetic and you may have a certain diet or you may have certain supplies that you need to restock, so there's a whole range of life states and demographic states that that work for this. Anybody that buys stuff on a regular basis, this really does work for. We've been really impressed with it with the range of demographics.

ECRM: You know, it's really interesting because in reading some materials before this interview, Tom, I liked the way you guys framed up the notion that auto replenishment is sort of the next stage of loyalty of retailer and consumer loyalty. I really liked the way that was framed up, and you took us through the stages of loyalty, loyalty 1.0, and this is now loyalty 4.0. Can you explain what you mean by that?

Furphy: Shopper loyalty has historically come down to the collection and use of shopper data ideally in ways that reward that shopper for their loyalty to you as a retailer. Reward them for the dollars that they spend with you for the trips that they make to your stores. We do see retailers have a broad range of the data that they capture on their customers, right? We've got some retailers that may not be awesome retailers that have a trove of data. We also have lots of retailers that are very good retailers, very good merchants and their customers love them, and they don't collect data. So, there's kind of a range out there of what we have from a data standpoint.

But the way we've defined the phases of loyalty are basically, you go back, and I was at Wegman's way back in the day. I mean, I can go back to probably '90 or '91 when we started Shoppers Club, a card-based program. And so you think back to the early days of card-based programs, they were about allowing you to get a discount for being a cardholder, right? There's a shelf price, there's a discounted price, I get that discount if I'm a card holder. That evolved. That was loyalty 1.0. Loyalty 2.0 took that to another level and basically said, "We can actually personalize your discounts based on your own historical shopping behavior." So, we can either give you a discount to reward you for something you've consistently bought, we can give you a discount to incent you to maybe shop a new category, we can use that to deliver something specific to you. So, that that was loyalty 2.0.

Loyalty 3.0 we've seen maybe over the last handful of years, and that takes it another level further, and can introduce things like geo-targeting, right? I know that you're entering my store, I can give you a discount here and now based on inventory awareness, based on the time of the day, based on maybe other preferences or behaviors that you're exhibiting to meet kind of real time. That's what loyalty 3.0. We think loyalty 4.0, which is what we consider auto replenishment, to be really taking that one more step further, right? Not only can we provide you good pricing and good value based on your purchase behaviors, but we can also help you by leveraging the data that you provided us, and it could be because you've been a shopper for us for a long period of time and we've collected that data. It could also be because you're a new e-commerce shopper of ours and you filled a basket or two or you start to fill a basket and we say, "Well what about this category? What about that category?"

So, you don't have to base it on a lot of historical data to be effective. But it's really about leveraging that data and helping people shop, right? Suggesting them the products that they really need. Enabling them to put those products on a replenishment regimen that works well for them, and then building that up over time so that large swaths of their purchases become automated and they get rewarded for that loyalty with the assistance of the retailer, and then also in many cases preferred value or discounts in return for declaring their loyalty to that retailer and this product.

ECRM: Great. In today's world right now, Tom, there's really been a whole financial upset of the retail operation because of whether it's the cost to keep the shoppers safe and store their employees safe in store, many retailers are hiring people for incremental in store service delivery, things like that. So, I'm curious to know, in terms of the auto replenishment opportunity, what are the economics? What are the economics of auto replenishment, and why is that important for the retailer?

Furphy: You know, e-commerce was a higher cost to serve model than stores even before all the latest events. And of course our latest events have just exacerbated that. Even back in the Amazon days, we had a relatively higher cost to serve model based on the uniqueness of a direct consumer supply chain. If you're going to take inventory, assemble it and get it to someone, whether it's through a common carrier or through local delivery, that's going to add cost to it. The economics of auto replenishment work, and we think this is really important, is that, first of all, we don't charge much for the service. I know any service provider would say that, but to just kind of frame up what it could look like in a transaction for a retailer.

If I'm a grocery retailer and I'm selling a hundred dollar basket of goods to an eCommerce customer, within that basket I might have $40 of replenishable items in there and $60 are one-time transactions, for example maybe some fresh products, or dinner for tonight. That cost of that whole transaction to the retailer will usually come out under a dollar, well under a dollar. So, it's relatively inexpensive for the value that is derived, and the value that's derived is the retailer gets larger baskets, right? Because the replenishable products are basically preloaded into the basket. The shopper has tools available to them to move stuff around, to pull stuff forward, push stuff out, and that's easy for them. But they get bigger baskets, they get better repeat and retention because as a shopper, I have my replenishable goods with you as a retailer. When those things come due to replenish, I'm going to prompt you to place an order.

Either I'm going to automatically place the order or I'm going to load up a basket and say, "Finish this shopping trip." And we have capabilities that sit within there called harmonization, which basically, think about if in your house you have 50 items on auto replenishment, right? The replenishment date of those is going to fall all over the place, right? You're going to have out of 30 days in a month, in 50 products on replenishment, you probably have 15 or 20 days during the month that stuff will be due to be replenished. We're not going to bug you 15 or 20 times during the month to say, "You got to go pick up your deodorant." What we're going to do is we're going to group them into logical groupings that are easy to manage, help drive the economics of the basket for the retailer. So we can get it over certain thresholds.

We provide inventory visibility for the retailer. In that case, we can help them with labor planning and scheduling. Because these are replenishment orders, we know that they're due further in advance than an on demand transaction, so I can plan labor accordingly. It allows us to better use as a retail or our promotional funds. We can take funding from manufacturers, channel it down to the products and the customers that are most loyal to us as a retailer and you as a brand. And so there's a lot of economic value that's driven out of having this, great value for the customer, great value for the retailer, and ultimately really good value for the brand as well.

ECRM: Explain to me the benefits for the suppliers. Because the suppliers are on the other side of this. Obviously I see this as an opportunity for the larger CPG brands, but also maybe share a little bit how auto replenishment could be of value to a smaller niche, emerging or challenger brand?

Furphy: There's a few different ways that brands can leverage auto replenishment, and we really kind of bucket it into three ways. One is through direct to consumer. Lots of brands would love to be direct to consumer. Everybody wants to be Dollar Shave Club, right? Everybody would love to go direct to consumer if they can. You get a relationship with your shopper, you leverage that data and that relationship to build a commercial relationship with them, and that's awesome. But not all brands can do that. They might not have the supporting infrastructure, their products may not have the economics. Shipping a case of paper towels direct to consumers often not going to work very well, for example.

But if you're a challenger brand and you're upcoming and you don't have a lot of retail distribution, direct-to-consumer is a great way to go to market. If you're a replenishable type of product, having this capability is really important. We work with lots of brands from early challenger stage to older stage. So, direct to consumer is one. There's another way that we call brand to retailer. So, where the brands are merchandising their products or marketing their products to the consumer, say on a brand website. Or perhaps within an ad somewhere where the shopper sees that product, they can click on and interact with that product and then build a replenishment regimen that drops down to their favorite retailer. 

An example of this is I can go onto Britta and look and look up replacement filters at Britta, and I can find the right filter for my pitcher, and it's recommended that I get a two pack of these every three months, and I click on it and I sign up for it and I drop it into my basket at Target. So, in this case, Clorox and Britta get the great benefit of working with the shopper. The shopper gets the convenience of not having to think about it again, and it's there for them in the replenishment regimen at Target when they're ready for it. Then third is working with retailers. So, retailers can light up a lot of replenishment for anything that's in their assortment. So, in this case, if I'm Britta, I can build programs with the retailer to prompt shoppers to get their Britta replacement filters from you and I can fund into that, right? I can fund a discount into that. I can also support you running the program as a retailer.

So, we're seeing in a lot of cases, brands are actually willing to cover the retailers cost of offering auto replenishment because they get so much benefit of it. As long as the information is shared back, these are the customers, the types of customers that are buying your stuff and establish that relationship, that can be really good. Then when Britta comes out with a new pitcher, comes out with a new type of filter, they can work down through the retailers and say, "Hey, we've got new product coming out. You loyal customer, we want to give you a first crack at trying."

ECRM: Right. It's interesting you mentioned Britta, and one of the things I'm curious to know is the enablement of replenishment to the early on Amazon buttons. And how will that evolve as there is an growing application of connected home smart devices, smart toothbrushes, things that are pinging out messages, and where does Replenium play or auto replenishment more broadly play in the evolution of smart home 5G pinging technology?

Furphy: Absolutely. Yeah, I love that. That's something we're super excited about. Quick on the dash buttons. Obviously they're gone now. They don't do the actual dash buttons like they did of yesteryear, but they were training mechanisms for folks. They taught the consumer you can press a button and get a product, and they probably had mixed success, but Amazon learned a lot during that, and the customer learned a lot during that. As we fast forward now to a world of IOT, like you said, Wayne, where you've got demand signals being generated from everywhere, those demand signals have to go somewhere. If the demand signal just goes into a cart, they're hard to manage. We have within auto replenishment, we have a capability called a replenishment queue, and you can go in and look at your replenishment queue at any time, and you'll see from tomorrow out as far as you want to look in the future, what your scheduled replenishments are for products across your home.

Those products can get into that queue in any of a number of ways. They can get into that queue because you click on it on a website, they can get into that queue automatically because they're just due to come up again from the retailer. They can get put into that queue through voice, they can get put into that queue through the app, they can get put into that queue through your appliance saying it's time to replace something. So, your smart light could know that its bulb is due to be replaced in however long or your refrigerator should know that its water filter is due to be replaced at a certain time.

And those demand signals can just put the products into your replenishment queue so that you as a shopper can see them and then you can manage them. You can push them out, you can swap two different products, and the platform allows you to manage that super effectively with very little thought.

ECRM: And that is a technology application that Replenium has today as well as a hub?

Furphy:  Absolutely. Yes.

ECRM: Right. Is that hub something that I would use as a home consumer, or is that something that the retailer uses. How would that work in my home?

Furphy: That's a great question. You as a customer would own your queue, right? The queue was generated for you, in a lot of cases by you, right? So, that's your queue. The retailer can see that. The retailer can see your queue. The aggregation of all of its customers cues together, which is great for the retailer because it helps them plan, it helps them market better, it helps them plan labor, inventory, kind of all that. So, there's a lot of benefit to the retailer in doing that. But we think it's really key that you as a shopper are in control of that data.

The retailer will have lots of rights and things they can do with it, of course, and brands will as well, but they need to use it to your benefit, to provide value to you as a shopper. What we want is you to own that data, that you have control of that data so that you can leverage that queue to best serve you. If we do that right, if we really think and obsess over the customer, then I think the whole rest of the capability will take care of itself, whether I'm a customer, retailer or brand.

ECRM: You know, Tom, the technology is rapidly evolving, and I think coming out of our current situation with the coronavirus crisis, the rate of innovation will significantly change. But in a recent conversation, it's not so much about innovation, it's about expectation.

Furphy: Yes.

ECRM: I think a lot of the things you're talking about is putting the power of that expectation into the consumer's hand. So, that's very interesting. I guess I have one last question. I know, Tom, you were involved with a lot of different conversations with a lot of different people across the industry, and I appreciate the conversation about auto replenishment and Replenium, but what else are you seeing? What are some of the other opportunities, innovations out there that maybe the average person doesn't know about yet today? What can we expect six months, 12 months, two years from now? What's next?

Furphy: You know, you've heard people saying, and some of them were quoting me, but we had always said that e-commerce would reach 20% of grocery retail and other retailers faster by 2023, and clearly we've accelerated in the very recent term past that. Now, we may settle back down to something lower, of course. But what's happened is we've had this big shock to the system, and I think a real kind of realization and level of clarity to folks in the industry, but also the customers, right? Customers are living where they're going in trying to get an order slot for an e-commerce order and they've got to wait two weeks. Or customers of Amazon getting turned away because they hadn't bought maybe a grocery from them in the past.

So, we're at a time now where there's been just this massive shock to the system. I'm on boards of everything, from retailers to retail real estate to technology, as well as equity, of course. I've had a lot of opportunity to talk to a bunch of retail leadership recently more so than the brand side. Obviously there's a bunch of anxiety there and I think the work that retailers have done to keep their shoppers safe and to keep their employees safe has just been literally heroic.

But retailers are starting to look forward and saying, "What's next? What's coming down? What am I going to need to do?" I mean, this could be another whole half hour conversation because we're seeing that the model has been so shaky and we look forward to where the model could be, and it impacts everything, from manufacturer and retailer relationships to sourcing and supply chain design, to store labor. What are the skill sets that we'll need? What is the amount of labor we'll need in the store? What are the pay rates of those? Because they're probably going to be higher.

How are we going to design the next wave of work? What work will sit in the store right there? Could be more about knowledge workers versus folks just pushing stuff around? Worker and customer safety is going to be super important. Will store formats evolve? I mean, obviously you see all the innovation Amazon's doing in store formats and you see others innovating and doing things around micro fulfillment and all that. So, how will that change what the retail footprint looks like?

E-commerce and digital are clearly going to become a bigger part of the equation, and with that comes a historically larger cost structure. So, how do we lower that through different types of inventory management, fulfillment, partnerships, those kinds of things? So, I don't think that there's any component of how we go to market that is not being examined right now and that we're not looking at with a sense of urgency, but not a freaked out urgency. I think it's an urgency, like, "Okay, well we have to do this. We see this, we're living it right now." And we don't want to keep living this, so we need to fix it. 

And then also I think there's something to be said for we're all at home now, and when you're not traveling. But when you're not walking from meeting to meeting and you don't have all the kind of decide, I think people just have a little bit more time to think. You don't need a lot more time to think, but even just with that little bit more time to think, I feel like, and from what I'm gathering in my discussions is people aren't afraid to look forward now and really think about what might be next. So, again, there's so many ways that things are going to evolve, and we look at our venture firm, we've always had that out to the future ,and we're pretty excited. I think this is obviously going to be a tough 2020, but we're pretty excited about what the future holds and the ability to see new types of collaborations, new type of relationships between brands and retailers and partners, and a new exciting way to serve the customer.

ECRM: Yeah, Tom, that's great. Just one thing that is intriguing to me is the whole concept of these community based, big box retailers that are becoming either central warehouses for local delivery or retailers that are becoming commercial kitchens for food service delivery. I mean, that's a very interesting dynamic. The convergence of those stores to different purposes in different roles, and the economics.

Furphy: You know, they have the advantage of good locations generally. So, they built the store there in the first place or the plaza there in the first place because there's a good number of people with the right demographics around close to it. Originally the stores were built as a place for people to go to discover and get stuff.

As discovery and actually getting stuff evolves, the role of the store changes, and then the role of the plaza can change. Whether its a dog store, whether it's an independent micro fulfillment node, right? Whether it's consolidation point for local delivery or local pickup, I think we're going to see an interesting evolution of this kind of retail space and distribution space. I mean, I'm sure that this was before our time, but I'm sure that 40, 50 years ago, 60 years ago when bigger box stores were originally being conceived, right? There was a lot of thought between what went on the sales floor versus what was in the back room. And really we're just kind of changing that dynamic, and it might not only be within the walls of an existing store. It might cross stores and whatnot. But, yeah, whether it's central kitchen, whether it's central types of work, whether it's inventory, movement, I think there's lots of opportunity for new uses of real estate and new uses of technology and partnerships and all that stuff.

ECRM: Tom, it was really great having a chance to talk to you. I know you bring a lot of insight and experience and thought leadership to the table and have really learned and appreciated learning more about auto replenishment and Replenium. I think it's very timely, and I very much appreciate you sharing with me that conversation, and maybe in the future we can get on one of these again and have another rap session about some other topic as it relates to the retail CPG landscape, because it is fascinating. It changes every day, and that's what really motivates me and gets me up every morning. I appreciate your time and we'll see you again soon and stay safe.

Furphy: Thank you, Wayne. I really appreciate it, and stay safe, everyone.