Automating Online Grocery | Elram Goren, CEO, Fabric

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Elram Goren, CEO of Fabric speaks with Oliver Chen, Retail & Luxury Analyst. They discuss the future of online grocery, the role of robotics, automation & software in on demand supply chain management and how this impacts financial sustainability & operational scalability. They also discuss the benefits of micro-fulfillment centers and the future of labor amid the rise of automation. Press play to listen to the podcast.

Transcript

Speaker 1:                       Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

Oliver Chen:                    Hi, it’s Oliver Chen, Cowen’s Retail, New Platforms, Luxury Analyst. We’re thrilled to be hosting us retail visionary series. Today, we have Mr. Elram Goren. He’s CEO and co-founder of Fabric, which is a software first, robotics solution and what we view as a key pioneer in the future of on-demand supply chains. Previously, Mr. Goren served as a Major in the Israeli Defense Forces managing R&D teams and multidisciplinary operations in the technology intelligence unit. He holds a BS in physics and electrical engineering from Technion Israel Institute of Technology and an MBA from Tel Aviv University.

                                         So, Elram, what is Fabric and what’s happening with on-demand supply chains? What do you mean by on-demand supply chains? And what’s important in terms of automation in grocery, the innovation that’s occurring there?

Elram Goren:                   Well, Oliver, first of all, thank you for having me. It’s a pleasure. Fabric is a company with a mission to enable on-demand logistics for everyone. What we mean by that is we’re building the services and tools that allow businesses to offer fast deliveries, fast as in one hour, same-day, sometimes next day, deliveries to their customers. Those costumers could be businesses or consumers, but to do that in a way that’s economically sustainable and scalable from an operational perspective. So, at the end of the day, what we’re here to solve, if we’re looking at online groceries, for example, is to solve a problem that exists today where online retailers are losing money on every order that they’re fulfilling and delivery.

                                         So we are building the tools for them to do that in a way that’s not just faster from a customer experience perspective, meaning same-day and on-demand, but also profitable. And we’re doing that by leveraging the tech that we built, this is where software and robotics kick in, that allow us and them to do the same operations and better operations or faster operations in much better unit economics.

Oliver Chen:                    Elram, what’s happened with consumer expectations and how has this mattered to your business in the midst of the pandemic? So much has been changing rapidly.

Elram Goren:                   Right? No, I think that’s a great question. I think two things happened, two main things. The first one is shoppers are buying more online, right? We’re seeing this very clearly in online groceries and we’re seeing this clearly in the broader e-commerce industry. So that’s one thing that happened. The second thing that happened, happened and still is happening, is that there’s an expectation for a better experience, and “better” is kind of a vague word, but usually goes to convenience, which could be speed or accuracy of delivery. It goes to the availability of inventory, especially in groceries, right?

                                         If you order 30 items, you don’t want to end up with 27 and three substitutions. You want to end up with 30 items that you actually ordered. And then definitely costs, right? So people are willing to pay a bit more but, whether it’s groceries or general merchandise, they are cost-sensitive, and the more the operations get efficient, the more value consumers can get. So I think that that one is definitely a journey, the customer expectations piece, but they have been changing in the past year or so, given everything that we’ve seen with COVID.

Oliver Chen:                    Elram, how does Fabric help meet that challenge of profitability? And what are micro fulfillment centers, for people who’ve never heard of that?

Elram Goren:                   So micro fulfillment centers, that’s a kind of a fancy term for taking your fulfillment operation. And instead of operating it 50 miles away from town, do it in the neighborhood, right, but also which will drive faster deliveries and it will drive cheaper last mile [inaudible]. To do that, that’s very challenging in  sustainable unit economics because you’re actually going against economies of scale, right? You’re going towards a distributed model versus a centralized one.

                                         Now, this is where Fabric’s software and robotics kick in. In order to make a, call it a 6,000 square foot fulfillment operation, something that actually makes sense, you do need to be very efficient in how you do things and you do need to process enough throughput for that operation to make sense. And this is what Fabric is doing. Fabric is building these unique atomic units, which we call micro fulfillment centers. What they allow us to do and our customers to do is to process sufficient throughput through a very small footprint and to do that in efficiencies that make sense for industries like online groceries. And once you’re able to do that, then the combination between the local nature of that operation and the efficient nature of that operation basically creates a new operating point in the P&L of the businesses that we serve that for the first time allow them to be fast and profit. And that’s really the strong combination.

Oliver Chen:                    Elram, how would you contrast your robotics/hardware capabilities versus your software in how those interact with each other in establishing their points of difference, how the industry is changing?

Elram Goren:                   Right. I think Fabric took an approach here that’s quite unique, which said, well, first of all, it needs to be a combined solution, right? It needs to be a software solution, needs to be a robotic solution. It also needs to be an end-to-end operational. So these are kind of the three levels here. And, in that sense, I think Fabric is unique because, A, it has that operational layer. So Fabric is building tech and it is kind of offering that tech solutions to others, but it is also an operator on its own. So we have our own micro fulfillment networks, and we’re selling on-demand fulfillment services from those solutions. So we are, in a way, our own customers when it comes to the tech. So that’s one thing.

                                         The second thing is that in the balance between software and robotics, so, A, Fabric took an approach that said that you really need to rethink the entire solution. So we didn’t take the approach of let’s kind of leverage existing old or legacy technologies. We said, “Okay, we’re going to need to build this,” and there was a good reason why we did that. And then the second, I think, principle was that between hardware or robotics and software, we want the robotics piece to be as reliable, robust, low cost, scalable as possible, which actually means it needs to be very simple in a way, and at the same time to have software do as much of the heavy lifting as it can.

                                         And this is how we ended up with a solution that’s extremely modular, it’s extremely flexible, and it has this balance between robotics that’s not necessarily that sophisticated. You have other players with more sophisticated robots with more sensors and more fancy hardware and things like that. We actually wanted to not do that and built robots that are simple enough in a way, but that serve our architecture and allow the software to do its magic.

Oliver Chen:                    Elram, how many facilities are now live, and who are some of your partners? Would also love elaboration on the recent deals with Walmart and Fresh Direct.

Elram Goren:                   Actually, Fabric started, we established the company in 2015. We did our first round of funding in 2016. The reason I’m mentioning this is this is where we actually started working as kind of a real company. We launched our first operation in late 2018. So it took us a good two years to incubate the technology, which makes sense when you’re building things from scratch. So we actually started our operations in Tel Aviv, Israel, in 2018, and we partnered with Israel’s largest health and beauty retailer. Their name is Super-Pharm and they have 200 stores across Israel. So we’ve launched our first operation there, and we then partnered with Israel’s second largest grocery chain, that’s Rami Levy. And we’ve launched our first grocery operation in Tel Aviv in late 2019.

                                         We are actually now in the process of expanding our operation in Israel, and that’s definitely very, very exciting, with existing customers and with new customers. And in the US, we are launching with Fresh Direct quite soon nationally, in the next month or so. And that’s going to be an operation that’s going to serve the Washington DC area in Maryland. As you’ve mentioned, Oliver, Walmart announced their partnership with Fabric a few weeks ago, and that’s coming up later this year. And what’s very exciting is that we have two more cities that we’re launching with our same-day proposition. That’s going to be a service proposition in New York City. That’s launching in the next couple of months, and in Dallas later this year. And in those cities, what we’re planning to do, and we actually already have some of it already in place, definitely here in New York, is to start building those networks of micro fulfillment centers and offer on-demand logistics services to our customers.

Oliver Chen:                    Elram, Walmart and Fresh Direct are large and prestigious. Why would they choose to partner with you versus doing this organically or doing it by themselves?

Elram Goren:                   I think what they… the choice they’ve made there is almost three-fold, right? They made a choice to go after micro fulfillment. That’s choice number one. They made a choice to partner and not necessarily build this on their own. I think that mainly goes to the fact that when you build such solutions, that requires sufficient time and expertise, and I think they found that there are partners who do that and it makes sense to partner with them.

                                         And then the third choice is working specifically with Fabric, I think what they’ve found is that Fabric’s unique proposition and solution in terms of elasticity, in terms of the proposition they could offer their own customers, whether it’s with respect to speed or availability of inventory, et cetera, and then obviously in terms of efficiency. I believe these are kind of the things that drove them to make that choice, and I think Fabric’s offering… or I would say this is a good testimony for Fabric’s unique offering in that respect.

Oliver Chen:                    Elram, on the topic of labor, what do you see as the future of labor and near or long-term considerations as automation enables a lot of labor savings? But the nature of the labor and retail is changing as well.

Elram Goren:                   I think the roles of humans, right, of us humans, is going to be more focused on human interaction and the experience that humans want to see and perhaps not as much on tasks that robots, at some point, will learn how to do. And that’s mainly because of cost considerations, but also because of availability considerations. I mean, one of the things that COVID has shown us is that the supply chain is not as resilient as maybe some of us thought it is, and some of it has to do with the availability of resources, most importantly is labor, right?  If your supply chain is built on labor, then if there’s shortage of that, for whatever reason, right, then you’re susceptible to having an issue in such events.

                                         So I think that robotic-based solutions could offer a more resilient solution for such a situation. But I will say, I mean, I think it’s, if we’re being realistic, it’s primarily around the ability of robotics to create more throughputs and lower costs. At the same time, I can tell you that Fabric is a company that, I mean, we’re thinking about as players, call it in the supply chain space, but we’re doing this in order to enable an elevated experience, right? And we know that that elevated experience, it can’t be only done with robots. There’s a strong human element there, and what I’m seeing is that we’re going to see more humans in the areas where we’re better at, which is actually those human interactions, whether it’s when you go to a grocery store and have an interaction with the butcher or the person in the deli or what have you, and less about things that, in time, robots are probably going to do now.

Oliver Chen:                    Balancing humanity and driving automation and really enhancing the service proposition through what I call magic plus logic as well. Would just love your take on what’s been most fun about this journey and any closing remarks you may have, Elram.

Elram Goren:                   The thing that creates the most satisfaction is to see how a group of people does that journey from point A to point B. To me, this is what drives me. In that sense you could’ve suggested that you could replace micro fulfillment with something else and that would be as fun, and I wouldn’t necessarily argue with you. I think, for me, at least, to see that process of a group of people being able to achieve something, although there are a lot of barriers, there are a lot of things that are hard in this journey. That’s what drives me. Beyond that, I think that I feel like we’re very fortunate to be operating in a time where we can offer the market something that from a timing perspective even is the right time, right?

                                         I mean, micro fulfillment five years ago, when we started this journey, was a, call it a weird idea, right? Nobody really took it very seriously. And I think there are a lot of things… or there are a few things I should say, that happened during those years that we didn’t initiate, we weren’t in control of, but we were fortunate enough for them to happen which allowed us to be in a position to offer what it is that we’re offering today. And, fortunately for us, we’re at the point where the market reacts very well to that. So I guess in that respect, we can be very thankful for how much fortunate you’ve been in this journey.

Oliver Chen:                    Yeah., what’s really remarkable is infinite demand and the market opportunity and also creating a complicated automated solution across software, hardware and partnering with companies in a modular flexible way. Elram, it’s been a pleasure to speak with you. Thank you so much for your time today.

Elram Goren:                   Appreciate it and thank you very much for having me, Oliver.

Speaker 1:                       Thanks for joining us. Stay tuned for the next episode of Cowan Insights.


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