Conversations with Entrepreneurs / CEO Series: Deepak Ohri and Adam Manikowski

Hello Deepak, hello everyone. Yes, thank you, thank you Deepak for the invitation. Indeed, we spent many hours of conversation in Bangkok, it was a great time together. And you know, after our meeting I have lots of thoughts, and it was a really great time together. So thank you, and thank you for keeping in touch.

So indeed, this is a very important year for Zabka because it's our 25th anniversary, and also this year we will open our 10,000th store, which will be a big event. As to myself, I joined around six years ago, so the time goes really, really fast here.

So you're right, I think COVID was very tough for businesses around the world. Different sectors reacted differently. For retail, it was extremely difficult, especially at the beginning, to make sure that we could provide our customers proper protection. Everything like disinfectants, plexiglass, or face masks were in deficit, so it was very difficult to acquire them. As Zabka, we managed, and we are known for the fact that we can react very quickly and adapt to the situation very quickly. So what we did: we helped our franchisees as a top priority because our franchisees are running the stores. We provided them with all the proper equipment they need to protect themselves and also to protect the customers, especially at the beginning when nobody exactly knew what kind of precautions could help. Then, of course, having customers in our hearts, we quickly adapted to their changing needs. We could see that customers didn't want to travel and spend time in busy, big hypermarkets; they wanted to visit smaller stores nearby, and Zabka is perfect for them. For example, to be closer to customers, we adapted and aligned our assortment according to their needs. We introduced fresh meat or fresh fish to our stores to make sure they could do fuller top-up shopping and didn't need to travel to grocery stores. We could do it very, very quickly. We also spent almost 30 million dollars to help our franchisees with proper equipment so they could run their businesses properly. We worked with our suppliers to make sure we had full availability of all products and all the range we wanted to sell to our customers and also to the franchisees so they could run their businesses properly. I think because of the huge cross-functional teamwork, we managed to successfully go through COVID, and even more, because it was during COVID that we accelerated our expansion and started opening more than one thousand stores per year.

So we are a convenience ecosystem for the customers. We are creating a convenience ecosystem where in the center of the ecosystem is our customers. We have different businesses, but the biggest business you need is Zabka Poland, which are our stores. We have right now 9,351 stores, we are opening on average three stores per day, and we are one of the fastest growing retailer companies in Europe. We are focusing on convenience. We say that our mission is to simplify our customers' lives. We save our customers' time by providing, I even say not convenience but ultra-convenience solutions. So Zabka is something more than the store; it's not only the place where you can do quick shopping—the average time visit is 122 seconds—but also use a variety of services, like withdraw or transfer money, load your top-up phone card, collect your parcel, send your parcel, and many other services, or even buy insurance or medical services. So lots of services combined with the assortment, convenience assortment which we offer to customers, we create ultra-convenient solutions for them. Right now, I don't know if you are aware, but we did extensive research, so still even during high inflation and difficult times, time for customers is extremely important and very valuable. Customers value the solutions which are saving their time, and this is the mission for Zabka. Our business model is designed in a way to simplify our customers' lives. Furthermore, because we have our physical stores, and among those physical stores we are also the largest in Europe operator of nano stores, which are the stores where you don't have checkouts, you don't have cashiers. The customer enters using the app or credit card, takes and grabs whatever they want from the shelves, and goes out, which makes their shopping time only 30 percent of the regular shopping time, which right now in Zabka is 122 seconds, already very fast and very efficient. So I would summarize it that we are a retailer something more than the store, ultra-convenience solutions for customers, focusing on saving them free time but also simplifying their lives.

I'm happy that you mentioned our business model because it's B2B2C. It's not only B2C like most retailers. That's why we say that Zabka has two hearts: one is customer and one is franchisee. If you ask me who is more important, customer or franchisee, I will say they are equally as important. We can observe behavioral changes in franchisees and customers. When we talk about franchisees, I would say that stability is much more important right now for franchisees after COVID, because COVID showed that being a franchisee and cooperating with a strong and big brand supporting the businesses is extremely important. That is why we are working during COVID and after COVID on many solutions which give stability and help franchisees in how they run the store. When I say about stability and security, an example can be the most modern solution which nobody has in Europe: special insurance for franchisees which helps them avoid possible debts when they finish cooperation with Zabka, for example. That is a great stability, and they value this a lot. From customer perspective, we can see that our ready-made solutions, our quick solutions, and our Zabka Cafe—the food which we are selling—is becoming more and more popular because customers have less time. It was in COVID when you started working remotely; everyone, I think we experienced this as well Deepak, started to have less time because working remotely you can manage much more things. But this created a situation where our customers and generally customers on the market have less time. That's why they are using solutions which save their time, for example in case of convenience stores, the ready meals. They don't need to spend time going to the grocery store to buy ingredients for cooking and then spend time cooking at home. So we can see that this behavioral change was very important. Right now after COVID, of course during high inflation, we see that value is also becoming one of the top most important things for our customers. That's why we are focusing so much on creating the best shopping experience, which is the value added to the shopping of our customers. So from a certain perspective, from franchisee perspective, it's stability and security, and from customers perspective, it's about time.

Yes, so we invested a lot in developing our range of QSR, of quick meal solutions. We invested a lot. We increased our new product development teams to make sure that we have the best quality and best ready meals on the market. We also invested in and created a joint venture with some of our suppliers, together with which we are creating those innovative quick solutions for customers. So for sure, if you have seen Zabka before COVID and you see Zabka now, you will see that our range of ready meals is much more extended, it's much richer, and this is gaining great momentum with sales. In some of the subcategories, we have almost three-digit increase of sales, which is great. For franchisees, it's mainly the amount of resources which we invested in creating the solutions for franchisees to give them security and to run the stores. I will give you an example: post-COVID, we didn't have the software which would help franchisees to run all aspects of the stores from the screen of a smartphone. Right now, we call it Cyber Store. We have very intuitive solutions where the franchisees can use the smartphone and can run all aspects of the stores. You have automated replenishments; we have an AI system allowing and helping the franchisees with indications how many products they should order. So franchisees do not need to spend, on average they spend eight hours per week thinking how many products they should order. Right now, it's just a few minutes and they accept, and they have just enough quantities which are needed to meet all the demands. Another solution is the special software which tells our franchisees step by step what kind of tasks they should do in the given amount of time during the day in the stores. It gives them the opportunity to plan their staff better, so they can have more time which they can focus to serve customers and to create a good shopping experience for customers. So I think, and we have many examples, because COVID changed when we saw the behavioral change within the franchisees and within the customers, we were able to very quickly adapt and to relocate the resources to the activities where we believe that in those new circumstances they create value. So for franchisees, it was security, stability, but also productivity in running the store. For customers, of course, everything which is saving their time and allowing them to have more choice in what concerns quick meals, ready meals solutions. And for speed of shopping, it was 120 before COVID, and we say on average it's still 120 after COVID. But don't forget that it's a big achievement to achieve such high speed of visit in the store during the time when we introduced much more new assortment and services. We were able to do it without impacting the length of time the customer spends in the store.

Yes, it's to not be afraid to take tough choices, being agile. Because we needed very quickly to make difficult choices in terms of resource allocation, what I described. We learned that waiting—because we knew if we waited to see if we should take this decision or that decision, we would lose much more than taking the risks. So if you want to be successful, you need to take the risks, especially during crisis situations. You need to trust your business model, you need to understand your customers and your franchisees. Once you have this, you need to take the risk. And you know, we made good decisions because it's during COVID, thanks to those decisions, that we were able—and this is very important, many businesses were having problems or went bankrupt—we accelerated the growth. We started opening more than one thousand stores, as it was during COVID, this decision.

So the secret is the DNA of the company and the culture. We spent some time to make sure that we are creating a franchise-centric organization. Because it's obvious that in the retail business, customer is very important. In the B2B2C model, the challenge was to make sure that everyone in the organization understands that the franchisee is as important as the customer. In order to do it, we needed to create a franchisee-centric organization. So on all the meetings, before we make any decisions, we ask ourselves: does it increase franchisee satisfaction? Is it helping the job of franchisees? Is it helping profitability of their business? If not, we are reviewing the decisions. Furthermore, we integrated franchisees into our key strategic decision-making process to make sure that we are not in silos, that we are understanding the real reality. So what we did, we created a Franchisee Council. This is the council which is elected every few years by all the franchisees. This council is the representative of all the franchisees, and on the key strategic decisions, we are working together with this council to make sure that the decisions we are taking, the direction where the company is going, is fully in line with what the franchisees are expecting. What we are also doing, we are making sure that every year we are finding efficiencies in the company, and from those efficiencies we can reinvest into value for franchisees, either with new technological solutions or improving profitability of their business. So this is ongoing work, but I think the key foundation was to make sure that everyone in the organization, from top to bottom, understands what franchise-centric organization means. Once you have those foundations, you can adapt all your processes to this. Because without this link, we wouldn't be so successful. The franchisee is the face of Zabka to the customer, so we need to make sure that we maintain high level of satisfaction. And we cannot forget that running a retail store is not an easy job. You need to like the speed, you need to like talking to customers, you need to like the change, you need to be entrepreneurial. So we are doing our best to make sure that we are helping our entrepreneurs and franchisees to run their businesses.

You should be both. But franchisees, we have lots of successful franchisees. And imagine that because of the fact that we invested so heavily in the solutions which are facilitating to run the store, everyone can become a franchisee of Zabka. You don't need to have retail experience, because we have such fantastic training programs and such fantastic tools. It's only needed that you need to like retail and you need to like interaction with customers.

I would answer Zara. They, for me, they have more exciting connections. And what prompts you to enter Zara? Is it the customer service, or is it the product display, or is it the retail, what is it, or the store design?

So I tell you, you know, I'm biased because I always, as a top priority, go to Zabka. I will lifestyle to my team: you need to visit the stores, you need to try our products, you need to buy our products to make sure that you are grounded to the business. So I'm doing this with pleasure. It also gives me time to interact with other franchisees but also with customers. So as a priority, but then of course I visit many other retailers, Deepak, because it's important to know you never operate a business in a silo. Customers, even with different shopping missions, have limited wallet, and you fight for their wallet. So I need to make sure that I know what kind of value proposition is being offered in the discount channel, supermarket channel, hypermarket channels, but also mom-and-pop stores. So I'm visiting all those different stores to make sure that I keep my hand on the market and on the newest trends. I'm also traveling with my team abroad to make sure that we are observing the newest trends and we are trying to position Zabka where we are, because we always want to make sure that we are not one step but two steps ahead of the competition. But in order to determine this, you need to really know what's going on in the market and what are the newest trends.

I think a life-changing moment for me, Deepak, was when I went to study in France. And when I saw retail, that's where I thought that my heart is for retail. That's why when I came back in 2009 to Poland, I started working in retail. It was kind of, if I didn't go to study abroad, I think I would end up somewhere else.

I think I would be in the sector where I can for sure interact with customers. I couldn't do an analytical job. I need to interact with customers or different stakeholders. This is what makes me happy: human interaction. So for sure would be this. But also, I think I would subconsciously look for a place which is very vivid and fast-growing, developing place. I like the change. If you look at my career, I was always using opportunity to learn something. What is the most important entrepreneurial skill that you think young entrepreneurs should have?

Yes, so we realized a few years ago that if we really want to be successful in the ultra-convenience business and be successful on the market, especially in Poland which is very competitive, we need to invest in technology. But only investment is not enough, because we needed to do transformational technological change within the company. Change the mindset of everyone, of all the teams, to really be technology-driven. So it's not only that you say, but we wanted to make sure that we do. In order to do it, you need to have the resources. So we made important capex decisions to invest a lot in technological solutions, but also we invest a lot in the people, in the teams. So right now, almost 25 percent of everyone employed at Zabka, 25 percent of the people are working only on technological and innovation solutions. So right now, we use technologies like cloud, AI, machine learning, or big data to help us make decisions. For example, where we are opening the stores. Many people are asking how it happens that you open so many stores, already so many, and you don't have any cannibalization. Because AI engine helps us to predict with 99 percent confidence what will be the sales, what will be the profitability of each location. Technology helps us to adopt the assortment segmentation to the proper segment. So we have different assortment in ultra-high traffic locations, different assortment in residential locations, or in seasonal locations, or in campus locations. Without AI, with almost 10,000 stores, it would be very difficult. We have all the information in the cloud. It helps us to share all the data with many other teams. It helps us to see in real time the performance of not only sales categories, but performance up to each and every product in real time: how the product is selling, how the selling compared to other similar products. So you are able to make decisions based on this, and those are the customer preferences decisions considering our assortment, which category and subcategory should be increased, or maybe which one should be lowered to increase the profitability of our franchisees' business and profitability of Zabka. So it was a big step for us a few years ago making this strategic decision, because it impacted all company. It's not only to have enough complexity and invest, you really need to change the mindset and the culture and have skilled teams who are able to implement and work on those solutions, but later on after implementation can successfully use those solutions for the decision-making process. So it was a big thing for Zabka, and without this I am 100 percent sure we wouldn't be able to grow so fast, we wouldn't be able to create so much value which we are investing for franchisees but also for customers, and you wouldn't be able to create so many unique products which can be found in nano stores.

It's all about the teams. It's all about the teams. And you need to know that the team is not working for the company, the team is working with a leader, with other team members. So for example, my philosophy is we could call it servant leadership. I don't want the team to work for me, I want to work for my team to make sure that they feel motivated and that they can grow with the company. I think the uniqueness about Zabka is the fact that on one hand you can grow with the company, you can develop your career, and on another hand it's a great place to work because of the values and also because of the fact that we invest in growing and developing our people. But also, if you look from ESG perspective, we make sure that diversity and inclusion is there and it's part of the DNA of the company. I give you an example: half of the board in Zabka are women. 60 percent of promotions during the last 12 months for senior manager positions were also women, where normally retail is for men. We also gained the equal salary certificate which proves that on a world scale we meet all those requirements. We are very proud of this. Just recently we received Gallup's Exceptional Workplace Award, and we are in the top 10 percent of places where employees are most satisfied and engaged from working. So we are also very proud because there is no other retailer having this kind of world award in Poland. So you're very proud of this. And I think those are many elements which contributed to this, but I think the most important element is to make sure that you create a very good working environment, that the people come to work happy. We discussed lots of many things with you when we met about happiness, and you are an expert on happiness. So you need to make sure that you create a workplace where people come to work happy, they want to work because they see that they can grow, that they can develop, they see that other people are caring about them, they have friends there. So I think it's about culture, it's about D&I, but it's also about how top management is behaving, because it goes top-down, leading by example. So I'm always telling my teams that their teams are observing them, they need to give the best example. And we are, I would say, slowly getting there, but we are already there. You can always be better, but I think that Gallup World Exceptional Workplace Award is something unique which we are proud of, which shows us that we are on a very good track to not only attract talents but also retain talents within Zabka. And when I see the growth of the company, of Zabka Group, because you are a group, I talked at the beginning, we create an ecosystem, it's not only about the stores but a whole convenience ecosystem where customers is in the center. I'm very happy to see that when the group is growing, also our teams are growing, because most of the promotions are internal promotions. So when I have a senior manager role and there is a new role, as a top priority we are looking inside who can be promoted. It is really very seldom that we employ somebody from outside. First focus is to see how we can grow and how we can develop the people. And then you have all those aspects of diversity and inclusion to make sure that everyone is included. I think it's extremely important.

Thank you, thank you. But yes, we are very proud of this and we will continue to do this great work.

Well, I would, you know, I respect my competitors, but I'm not giving them advice. So I would for sure respect you. We could meet for lunch or dinner, but I think it would be rather a general conversation about the markets and giving each other advice. But I can tell you from a competitor's perspective, Poland is an extremely difficult retail market. If you look at the data, we have one of the lowest margins on the market because of the discounters which are pushing the prices very low. That's why I'm so happy to see that our business model, the convenience model, is so accepted by customers and we can really grow as a financially strong but also fast-growing company.

Yes, so we have to grow so fast. Last year we opened more than 1,100 stores. Two years ago we opened 1,050 stores. This year we will open also more than one thousand stores. To grow so fast, you need to have a special model which helps you connect the dots. Connecting the dots is: at the right moment, finding the right location, finding the right franchisee, preparing the location to open the store, training the franchisee, and then shadowing the franchisee when they start running the business to make sure they are successful. So you need, in order to connect all those dots, to have a very strong technological backbone. If you don't have it, it would be very difficult to manage all those processes. For example, to open a new store, as a base you need to find the location. So we have a team of very experienced expansion team across Poland, and the software and AI which we applied analyzed almost 10 million addresses in Poland and is able to indicate to those teams where to look for specific locations. Once the location is found, it is going to be checked and modeled also by special algorithms which help us to predict with a very high level of certainty the future sales of the store. So we compare the rent for the store, we check the sales, we know the margins, then we can conclude on profitability, we can conclude on payback return. Once having all that information, we have investment committees where we make decisions for each location: we go for it or we don't go for it. Once we have locations, we know where we are looking for the franchisees, and we have separate teams which are looking for the franchisees. We have a very attractive franchisee offer and we have also very elaborated training systems. As I said before, you don't need to have retail experience to successfully run Zabka stores. So for selected locations, we are meeting with candidates. We also have a strong pipeline of candidates willing to open their Zabka store, so they are waiting for the location. Once we have it, we start the training process. At the same time, you have another process of preparing the location to be open. So the franchisee does not need to bring the location, the franchisee does not need to own the location. The only requirement to enter Zabka is to successfully pass the examination after the training process and to have a small contribution, a small investment where you buy the checkout, which is regulated by law, you need to do it to have your own business. So the entry barriers to run Zabka stores are really low. We made it really low because of our investment in our business model. That's why we are also known in Poland as a flagship example of how you can increase entrepreneurial spirit in a country, because every store is a new entrepreneur. Right now we are working with more than 8,000 franchisees currently. But for this, Deepak, in order to do this efficiently and with discipline—you mentioned cost discipline—you need to have a very strong technological backbone. Without this, with so many processes, so many different dots which you need to connect, it would be very difficult.

Yeah, so we have right now nine distribution centers in Poland. We have almost 20 cross-docks. Our supply chain is very sophisticated because, as you know, in each retail business, logistics and supply chain is critical. One, because of cost effectiveness, and the second thing is to make sure that you have full availability of the products which we are carrying. Another thing is that it impacts your cash flow if you have too much stock, etc. So we invested a lot in logistics to make sure that having the locations, for example small locations, almost 10,000 locations in many different cities, the logistics is as efficient as possible. So we have lots of, for example, small trucks going to the separate stores, but we have the software which helps us to establish the trips in a very efficient way, that the small truck goes from the distribution center full and spends only a small amount of kilometers needed to serve the biggest amount of stores, to make it really efficient. We invest lots in the processes, also in robotics. This year we are opening, we already opened a chilled and frozen, the newest and most modern automated distribution center near Warsaw, which will be serving up to 5,000 stores, and you have full automation with high bay. This is designed from scratch especially for Zabka, it's not copy-paste. All the systems, all the robotics, all the automation is designed for us to make sure that we gain as much efficiencies. And our supply chain efficiencies are a good example that once you have a very efficient supply chain, you can reinvest those efficiencies, which we are constantly doing, into value for franchisees to every year increase their level of satisfaction, and also to the customers, making sure that you are always two steps ahead of the competitors. And we will continue to do this. So this is like a separate area where we have special programs and special design, and we have for the next 10 years elaborated in detail what and when we want to do and what kind of investment we want to do, so that the supply chain maintains and supports the growth of the company. Because if you open stores without growing your supply chain, it would be difficult at some level to have products on the shelf. So you need to grow on one hand the business from store perspective, but on another perspective at the same time you need to grow your supply chain. And many retailers say that supply chain is the heart of the retail business, which I fully agree. You need to have it. It's maybe not visible, but it's behind all the system, and it is creating the fact that the customer, when they come to the store, can find proper products on the shelf. Behind this is a sophisticated supply chain.

So we have right now more than three million. The number is growing, which makes me happy because this is three million customers per day.

Yeah, so we have a few hundreds of products on a constant basis which are our products. But I can give you an example: during the last 12 months, we introduced 500 branded products which you could buy only in Zabka. The big brands, the top exclusives, which is part of our strategy to create the image of Zabka as a place where you can buy products which you can buy nowhere else. So it's not only our private brands, but also the top world brands which create special brands for us. For example, if they launch a new product, a top branded product like a new flavor of Coke, we are in a position on the market that we can have it for a long time as the only unique and exclusive retailer. And we are working like this with other top suppliers. For this, it also requires a special business model, a special modus operandi. But what I can see is that our suppliers are very happy and they appreciate the fact that we make decisions so fast, we are not afraid of experimenting with novelties and innovations. Right now, we are very known in the market for an innovative approach to how we create our assortment and product range for customers.

Canada is warm. Yes, for all those who don't know, Adam comes from Canada. Now you mentioned innovation and you mentioned experience. So in your organization, how many people are you hiring based on experience over expertise?

So in number, if you look at the numerical, it's expertise. But if you look at the weight, for example, the higher you are in the organization, it's more experience. So we have it in our DNA that the higher in the organization, the more you think: what could I do differently? What could I do more either for customers or for franchisees, or how can I increase the value which is created? So for this, you need to think from experience perspective. But this we require depending on the role and the level, because this is the manager and senior manager who with this approach is inspiring the teams, even expertise teams. Like two words you said: experiment and experience. In Latin, there's one word called experience, and that says one should experiment and experience. Another thing: you reapproach your processes very regularly, and repetition is the mother of a great organization.

No, first of all, I would like to thank you, Deepak. Yes, thank you, Anya, thank you for the invitation. Yes, congratulations Deepak on your great book, great inspiration. Thank you, Adam. Thank you. I would also like the people who joined us and who spent time to listen about Zabka. So I hope if you didn't have experience with Zabka, that I inspired you a little bit to visit our stores. But also if you run your businesses, I hope that maybe I inspired you with some of the solutions. If you need anything more, you can reach out to me via LinkedIn. I'm more than happy to stay connected with you.

Thank you, have a nice evening.