Robert Graybill is the president and CEO of FMS Solutions, a service and IT provider to the independent grocery industry throughout North America and northern South America. With offices across the continent and in India and Central Asia, FMS combines industry-leading technology and best practices to serve clients through what it calls a “Decision Support Suite.” This September the company will host the Financial Management & Technology Conference, co-presented by the National Grocers Association, which officially endorses FMS.
Q. Tell us about how the company got started.
BOB GRAYBILL: FMS was originally founded in 1974 by a gentleman named John Schock. He started the company out of a need where the wholesaler was providing the services; and people liked the confidentiality of not having that wholesaler, whom they were negotiating contracts with, knowing what their bottom line was.
Q. FMS became an ESOP several years back. Do you still use that structure?
A. It was in 2000 that we had started the ESOP. We had gone through that process primarily as a tool to buy John out; and we recently, within the last year, converted that ESOP back to a privately held company.
Q. Describe your role on the leadership team and how decision-making at FMS operates.
A. All of our senior management team came from the grocery industry. I’ve worked in a grocery store since I was a frozen meat cutter for a little independent here in Baltimore. I guess they didn’t care about labor laws at that time but I was underage, working the band saw. I’ve worked everything from the front end to deli, bakery, meat, accounting, buyer, warehouse manager, director of pricing. So, I’ve seen the industry first hand and so have my counterparts, the four of us on the leadership team. We know the business. We try and hire from within the industry. When you call us, we’re not trying to understand your business—we know your business. Now it’s how do we help you with your business. And that’s really caused the growth.
Q. You chiefly work with independent retailers. How have you considered providing for supermarkets, big box stores, and the like?
A. Our company already serves some pretty large businesses. C&S Wholesaler, which is a national company, is a client of ours. We’ve got clients that have hundreds of stores in the Midwest—Coborn’s and those guys, and they go by different banners because everybody has a corporate name and then the banner on their store. That marketplace is a lot more interesting to the extent that the independent that has 10 or 20 stores that might be doing $400 million a year in sales—and those numbers sound large for that size company—but with a 1% to 2% bottom line, if you’re not doing $7 million to $10 million a store, you’re struggling. That marketplace is one that we need to get into eventually, but when we look at our market saturations in certain parts of the country and Canada, our focus still is on the independent.
Q. Could you describe your archetypal customer profile?
A. Our customers typically have about 25% less back-office support than non-customers. The infrastructure on the IT side, because of the hosting and the models we use, are a lot cheaper than other service providers. We very much recognize grocery as a limited margin business, and it’s actually provided a competitive edge for us because a lot of our larger competitors in the marketplace are going in at a lot higher cost, and because we are dealing with one specific industry and have lower overhead costs for us, it allows us to be more competitive for a company that’s making a penny and a half on the dollar.
Q. Do you consider the rise of on-demand grocery delivery a threat or opportunity?
A. A lot of our retailers have online and home delivery. However, on the other side of the picture is Amazon. Amazon is basically being named the next Wal-Mart for the grocery industry. Now, a positive side of that: one of our customers very recently in the New York City market—D’Agostino’s—actually teamed with Amazon for their home delivery service. So, in the larger cities, Amazon is finding it easier to work with an existing partner rather than setting up an infrastructure like they have here in Baltimore. It could be a plus or a minus for us in the future.
Q. What other industry trends are you paying close attention to?
A. The most important trend is consolidation. We’re seeing a lot of acquisitions—large acquisitions. For us, it has some pros and cons. Albertsons recently acquired Safeway. The FTC got involved and forced a spinoff of stores in certain markets, which independents then picked up, which we then picked up that service for the stores. We’ve looked, and we’re slowly starting to make some transition in some of our service offerings because we realize that private equity companies are getting very heavy into grocery with these acquisitions. What’s going to happen for us is we’ve got to basically create a niche to service them as they do their purchase, their startup, and then they do their spinoff to make their capital back.
Q. FMS is rather active in South America. How does the U.S. market compare to the market there?
A. In the last few years, we’ve expanded internationally, starting six years ago, and that’s been probably one of the most interesting parts of the business. Here in the U.S. we have large frozen food sections, we have large prepared foods that are prepackaged. When you go into other countries, especially in South America, the frozen food aisle essentially is set up for the expats, more or less. Liquid detergent is not used very heavily whereas powder still is. So, you learn a lot of things, and even though we’re providing the accounting and the technology, we’re also looking at the operational results and providing input of store operation.
Q. Where do you hope to take the company in the next five years?
In five years, I hope we are not only saturated in North America but that we have entered Australia. We are working on something in South America currently, which is going to open up a pretty significant market share for us down there. So, I hope to be in three continents.