Blair Welch, co-founding partner of Slate Asset Management, was recently interviewed by Don Wilcox of RENX about the company's recent acquisition of the Commercial Real Estate Business of New York-based Annaly Capital Management. As part of the deal, we also acquired $0.4 billion of grocery-anchored real estate assets across the US. These were purchased by Slate Grocery REIT (TSX: SGR.UN). What some of you maybe don't know, though, is how we as a company view these kinds of assets as being essential food infrastructure, more so than as being retail assets. So here are a few excerpts from the article and quotes from Blair that explain why, in our view, this distinction matters.
“We started buying grocery-anchored real estate in a big way in the financial crisis and I think we always looked at grocery-anchored real estate as food logistics, rather than a retail play,” Welch explained. “In the pandemic it’s really proven the local food store, or the spoke in the hub, is just as valuable as the hub itself.”
Despite an increase in online grocery shopping (to about 10 per cent in the U.S.), people are still going to the stores. Or, at least, (are) getting their products from the local stores. Again, think “food logistics.”
Blair Welch, co-founding partner of Slate Asset Management, was recently interviewed by Don Wilcox of RENX about the company's recent acquisition of the Commercial Real Estate Business of New York-based Annaly Capital Management. As part of the deal, we also acquired $0.4 billion of grocery-anchored real estate assets across the US. These were purchased by Slate Grocery REIT (TSX: SGR.UN). What some of you maybe don't know, though, is how we as a company view these kinds of assets as being essential food infrastructure, more so than as being retail assets. So here are a few excerpts from the article and quotes from Blair that explain why, in our view, this distinction matters.
“We started buying grocery-anchored real estate in a big way in the financial crisis and I think we always looked at grocery-anchored real estate as food logistics, rather than a retail play,” Welch explained. “In the pandemic it’s really proven the local food store, or the spoke in the hub, is just as valuable as the hub itself.”
Despite an increase in online grocery shopping (to about 10 per cent in the U.S.), people are still going to the stores. Or, at least, (are) getting their products from the local stores. Again, think “food logistics.”
“That (10 per cent bought online) means 90 per cent is done in store,” Welch observed. “Now, here’s the interesting thing. Over 90 per cent – probably closer to 95 per cent – of the online sales are done at the local store.
“So what we are saying is over 99 per cent of all the sales are done at the local stores, whether it is click and collect, or someone delivers. You are not changing the distribution pattern.”
Here are a few more words and a comparison to what Amazon is and has been doing when it comes to food logistics:
“If I’m Kroger or Walmart if I have to pay $10 (per square foot) for my warehouse what’s the difference if I’m paying $10 for my store? It’s the same cost, they just look at it as a distribution cost,” he said.
However, those stores are in the middle of most neighbourhoods. Exactly where Amazon wants to be.
“I think Amazon is an amazing company. I think their acquisition of Whole Foods and others is actually to get closer to the consumer. And the Whole Foods (acquisition) was just under 400 grocery stores in a market of 35,000 stores.
“If I am Walmart with 5,000 stores or Kroger with about the same under different banners, that infrastructure is extremely valuable.”
“That (10 per cent bought online) means 90 per cent is done in store,” Welch observed. “Now, here’s the interesting thing. Over 90 per cent – probably closer to 95 per cent – of the online sales are done at the local store.
“So what we are saying is over 99 per cent of all the sales are done at the local stores, whether it is click and collect, or someone delivers. You are not changing the distribution pattern.”
Here are a few more words and a comparison to what Amazon is and has been doing when it comes to food logistics:
“If I’m Kroger or Walmart if I have to pay $10 (per square foot) for my warehouse what’s the difference if I’m paying $10 for my store? It’s the same cost, they just look at it as a distribution cost,” he said.
However, those stores are in the middle of most neighbourhoods. Exactly where Amazon wants to be.
“I think Amazon is an amazing company. I think their acquisition of Whole Foods and others is actually to get closer to the consumer. And the Whole Foods (acquisition) was just under 400 grocery stores in a market of 35,000 stores.
“If I am Walmart with 5,000 stores or Kroger with about the same under different banners, that infrastructure is extremely valuable.”
Earlier this week, Amazon announced that it plans to return to an "office-centric culture" as its baseline. Its rationale was that being in an office allows the company to better "invent, collaborate, and learn together." All of this was laid out in an announcement that was distributed to its teams globally. On the other end of the spectrum, Twitter continues to double down on working from home. The company, which is currently hiring, is even trying to target talent that may be disgruntled by the fact that their current company is planning for them to return to the office. Two very different approaches. So which one is right?
This is, of course, a great debate right now and the right answer probably depends on a myriad of different factors, some of which are likely specific to the company. Dror Poleg has been trying to think through this problem with something he calls the talent equation (because it's all about talent). It works like this: level of in-person interaction x overall size of talent pool = innovation and financial success. The basis behind this equation is pretty simple. In-person interaction is great for business. This much we know. But you also need the right talent interacting. Allowing remote work is one way of expanding the size of your talent pool. But again, you do this at the expense of in-person interaction.
In-person interaction is what makes cities the great organisms that they are. And I believe firmly in this side of the equation over the long-term. Even right now I find that when I go into the office, my call and Zoom volumes go down dramatically and I have more time to think, collaborate, and do, you know, actual work. This is because many interactions don't require a Zoom meeting when you're in the office. You stop by someone's desk. You ask a thing (usually pretty quickly). And then you go off and action that thing. But I also acknowledge that for some companies, access to the right talent -- and lots of it -- may be a real challenge, particularly in smaller cities.
Like Amazon, I am a supporter of office-centric work cultures. But I do think that Poleg's talent equation is a useful way to think about this debate right now.
Amazon is sometimes criticized for its private labels. The way this generally works is that Amazon uses the data that it collects from its platform to see what customers are buying. It then goes out and makes its own version of these products and sells them in competition with the other products in its marketplace. The reason why Amazon (and others) do this is because the margins are generally better on private labels, even though they are often positioned to the end customer as being a value-oriented alternative. That is, they're cheaper.
Some people think that Amazon shouldn't be doing this, particularly as its third party marketplace continues to grow. This side of its marketplace deals with inventory that Amazon doesn't own. It is the stuff of third party sellers who come to the platform to access Amazon's customer base and reach, and to possibly use its fulfillment services. This marketplace now makes up about 60% of Amazon's sales volume and so it has become a dominant part of its business. It's a way to grow without having to spend money on additional inventory.
Is it, then, acceptable for Amazon to mine this data, replicate products, and compete with its own customers? The truth is that this isn't all that new. As Benedict Evans points out in this recent post, retailers have been doing this for more than a century. The above table taken from a 1932 report on "chain store private brands" shows that about 80% of stores in the US at this time were selling private label brands. Furthermore, it represented about a quarter of their overall sales. Is this time any different?
Earlier this week, Amazon announced that it plans to return to an "office-centric culture" as its baseline. Its rationale was that being in an office allows the company to better "invent, collaborate, and learn together." All of this was laid out in an announcement that was distributed to its teams globally. On the other end of the spectrum, Twitter continues to double down on working from home. The company, which is currently hiring, is even trying to target talent that may be disgruntled by the fact that their current company is planning for them to return to the office. Two very different approaches. So which one is right?
This is, of course, a great debate right now and the right answer probably depends on a myriad of different factors, some of which are likely specific to the company. Dror Poleg has been trying to think through this problem with something he calls the talent equation (because it's all about talent). It works like this: level of in-person interaction x overall size of talent pool = innovation and financial success. The basis behind this equation is pretty simple. In-person interaction is great for business. This much we know. But you also need the right talent interacting. Allowing remote work is one way of expanding the size of your talent pool. But again, you do this at the expense of in-person interaction.
In-person interaction is what makes cities the great organisms that they are. And I believe firmly in this side of the equation over the long-term. Even right now I find that when I go into the office, my call and Zoom volumes go down dramatically and I have more time to think, collaborate, and do, you know, actual work. This is because many interactions don't require a Zoom meeting when you're in the office. You stop by someone's desk. You ask a thing (usually pretty quickly). And then you go off and action that thing. But I also acknowledge that for some companies, access to the right talent -- and lots of it -- may be a real challenge, particularly in smaller cities.
Like Amazon, I am a supporter of office-centric work cultures. But I do think that Poleg's talent equation is a useful way to think about this debate right now.
Amazon is sometimes criticized for its private labels. The way this generally works is that Amazon uses the data that it collects from its platform to see what customers are buying. It then goes out and makes its own version of these products and sells them in competition with the other products in its marketplace. The reason why Amazon (and others) do this is because the margins are generally better on private labels, even though they are often positioned to the end customer as being a value-oriented alternative. That is, they're cheaper.
Some people think that Amazon shouldn't be doing this, particularly as its third party marketplace continues to grow. This side of its marketplace deals with inventory that Amazon doesn't own. It is the stuff of third party sellers who come to the platform to access Amazon's customer base and reach, and to possibly use its fulfillment services. This marketplace now makes up about 60% of Amazon's sales volume and so it has become a dominant part of its business. It's a way to grow without having to spend money on additional inventory.
Is it, then, acceptable for Amazon to mine this data, replicate products, and compete with its own customers? The truth is that this isn't all that new. As Benedict Evans points out in this recent post, retailers have been doing this for more than a century. The above table taken from a 1932 report on "chain store private brands" shows that about 80% of stores in the US at this time were selling private label brands. Furthermore, it represented about a quarter of their overall sales. Is this time any different?
