Supply and demand: A conversation with Dan Elrod of Wallace & Carey
Dan Elrod is president of Wallace & Carey, a leading logistics and supply chain solution to the convenience industry Canada. The family-owned business started in Calgary in 1921 with one truck and eight staff—today it has touchpoints coast to coast to coast, stocking more than 12,000 products in 10 modern distribution centres, a fleet of more than 140 trucks and 700 staff. With more than 1,000 deliveries a day, and millions of items each year, the company is an integral part of the supply-chain network for convenience retailers, which represent about 80% of the company’s business.
Elrod, who hails from Texas, retired from distribution giant McLane in 2017 and in 2018 moved to Calgary to join Wallace & Carey.
CSNC editor Michelle Warren spoke with Elrod about challenges, changes and fresh opportunities.
What brought you to Canada?
DE: One of my key decision points on deciding to join this company was, ‘Do we have competent, skilled professionals in the key areas of the business?’ That's in purchasing and in operations, that is sales and marketing—the answer was very much so yes, in every area. I thought that I could be of benefit to the business after looking at what their opportunities and needs were, and decided to give it a shot.
What’s the first thing you noticed about the Canadian convenience industry?
DE: There has been some consolidation occurring through acquisitions, where some larger groups are bringing on or taking over some smaller regional and local players. I would say the independent convenience store retailer is very much fragmented, including sourcing, which is an inefficient process for those retailers.
How are you addressing this?
DE: Wallace & Carey began an initiative last year, to increase our retail store base by a net 300, over a 12-month period, and we achieved that goal. Success with independents is getting their order to them with the products that they need at the right time at a good price. You have to have a sales force that is actually making physical calls into retail, and talking to those customers, and developing the relationship so they trust we know what's going on, what's available in the market, what the trends are, the new products—things that a large chain is going to hear immediately from the manufacturer. The independents don't have that luxury: Bringing those offers, options, deals and promos directly to them on an ongoing basis, is a huge added value proposition.
Tell us about some core initiatives.
DE: We've taken a number of steps to improve our performance. Wholesale distribution, if you run extremely well, you hope to achieve maybe 5% gross margins and maybe 1% pre-tax operating profit. It’s tight, so what do you do? If you raise your price to your customers, then you're not competitive. Instead, you become more efficient in what you buy and how you manage it. We have focused on improving our value added services to our suppliers so we have more productive relationships with them. The other side is being a very good service provider. To a convenience store that means you show up on time with the products that they ordered. That's your service levels, your fill rates. We've always been good at that, but it's cost us money to be good at that because of some inefficiencies.
How did you turn this around?
DE: We've become more efficient in our inventory management. We've also become much more efficient in our operating costs and routing. That's essentially asking if we are matching labour expense to the volume of work that we're doing on a minute-by-minute basis: Literally, it is minute by minute. For instance, now we create a route that’s got 10 specific stores on it and each one can be delivered to within a two-hour ETA. Really, blocking and tackling operational execution, running things efficiently, finding areas of waste or inefficiency, and solving for those, is where a distributor can make a material difference. Everything has to be measured against a standard: Is it contributing positively to the bottom line or is it not? We have focused and grown in areas that were positive and productive to our business.
You’ve added cannabis distribution to the mix: How did that come about?
DE: Timing is everything. I joined officially in September of 2018, and cannabis became legal in Canada in October. However, Canada did what countries always do with initiative like this, they forgot about the supply chain. All of the regulations are around what a manufacturer-producer can do, and about what a retailer can do, but what happens in the middle? What we quickly found was that our expertise handling, managing and shipping, high value, highly regulated product was very well developed, because of what we do with cigarettes and tobacco. We developed a very extensive set of best practices and procedures, specific to that product—this is what you need to manage, and secure, and protect, and stay within the laws and guidelines of getting your product from point A to point B.
What is your role now?
DE: The key point is we do not buy, own, we don't even warehouse cannabis. Our involvement is in transporting. We essentially saw a market need, and the solution fit our business model well. We're venturing into areas and situations where it makes sense, but it's by no means our core business—that continues to be convenience and that's where we invest our capital resources, in our infrastructure and systems growth and development of our core business and core competencies. That is convenience store wholesale distribution.
Do you see any links between the future of cannabis and convenience? Might there be opportunities, down the road, to marry these businesses?
DE: What I hear is, ultimately, most in the industry believes that they will be selling cannabis in some form eventually, and that's from the largest chains to the smallest store. You put your regulations around it, and then you make it available to the public. You don't tell them where they have to go to buy it.
One more COVID-19-related question: As the economy reopens, what can the industry learn from and build on to succeed in the coming months?
DE: As with most Canadian businesses and elsewhere, Wallace & Carey took immediate steps to protect our teammates and customers, through implementation of improved health and safety protocols. Deemed an essential business, we have continued to operate in support of the needs of our customers and all Canadians…. Wallace & Carey, and our industry as a whole, has learned unexpected disruptions require us to be nimble and efficient, in all areas of the business, at all times. New traffic patterns within our customers’ businesses, changing demand from consumers, a workforce with high expectations for improved health and safety measures, and any number of other variables challenge us to be flexible, adaptable, and open to change that is certainly with us and here to stay.