What Are the Benefits of Fulfillment Networks With Manish Chowdhary of Cahoot

Guillaume: Hello everyone Guillaumme Le Tual here, host of Ecommerce Wizards Podcast where I feature leaders in Ecommerce and business. Today’s guest is Manish Chowdhary. He’s the founder and CEO of Cahoot, which can be found at Cahoot.ai. Today we’re going to talk about DTC, Direct To Consumer. So DTC versus Amazon, how to try with multi channel operations. Quite a challenge right now in Amazon, how do you compete with them? So before we get started our sponsorship message:

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Alright, Manish, thanks for being here today.

Manish: Guillaume, thank you very much for having me.

Guillaume: All right, so before diving to the main topic, I like to always spend a little bit of time so you can tell us briefly in like a minute or two, your background as an entrepreneur.

Manish: Yes, thank you and thanks again, for everyone tuning in. My name is Manish Chowdhary. I’m the founder and CEO of Cahoot. I have over 20 years of ecommerce experience, involved with building one of the first ecommerce platforms. This is going back to the days before Magento, Guillaume. So I’ve been involved in ecommerce for that long. Following that I built an order management inventory management platform. It’s a full service solution. So I have seen and worked with SMB merchants, even large enterprises for nearly two decades. And now I’m running Cahoot, which was founded a few years ago in 2018. I can tell you a little bit about Cahoot if you like.

Guillaume: Go for it because the product you have is very unique. I think it’s something brilliant, the idea that it really stands out, if I’m thinking what kind of business do I want to create it’s the kind of idea I hope to have. So go for it.

Manish: Thank you, Guillaume, that is very kind of you. It is indeed innovation, it is very innovative, what we’re doing. Cahoot is the world’s first peer to peer order fulfillment network. What that means is that Cahoot has multi-dozen warehouses throughout the US right now and soon to be global, including Canada, Mexico, and others. And essentially, we provide brands and retailers with best in class fulfillment services similar to Amazon FBA. Whether you are targeting two day delivery nationwide, in that case, Cahoot can distribute your inventory across multiple fulfillment centers and pick the lowest cost carrier to get the order delivered in one day, two days. And we support that we do this regularly for our clients who want Amazon seller fulfilled prime which is essentially an Amazon Prime-like service, but for merchants who wish to do self fulfillment.

So that is what the service is for the brands and retailers. But there’s a very unique business model behind that which I’m happy to share, which is that most of these warehouses belong to other brands and sellers that have their own warehouse that they’re operating for themselves. And if they have excess capacity in that warehouse, they join Cahoot as a fulfillment partner, and they get to monetize that excess capacity for the very first time. So if you know of a merchant, if you know of a seller who has a warehouse, let’s say 40,50 or any size warehouse and they have sufficient space vacant that is going unutilized, you can come and apply to become a Cahoot fulfillment partner. And that’s where our capacity comes from that allows Cahoot to beat the rates, that allows Cahoot to enforce them onto our clients because it’s a win win. It’s a win for the fulfillment partner because they’re making extra cash and that’s of course a win for the brand or the retailer because they get lower cost by design. And that’s what makes Cahoot very unique and innovative.

Guillaume: All right, it is a brilliant system because you’re more or less building an Airbnb or an Uber but on the b2b side of things, everybody can use the excess capacity of their warehouse because it’s always a problem. With time you buy hardware, regardless if it’s like additional server resources, or if you’re buying warehouse space, you buy a full warehouse, and maybe you’ll use half of it, two-thirds of it or whatever. It’s never optimized, and you plan on renting out warehouse space, and you need to buy a second warehouse, and it’s never going to be 100% capacity utilization. So it is quite brilliant. There’s a lot of operational challenges. From a technical point of view, I don’t know your business that would need to be solved to operate this. And that’s probably why you’re the first one that I have heard of, to move forward with this kind of model. And the while you’re pulling it off, you’re making it work right now. So for sure, I’m very interested to know more about this and we’ll see how you can perhaps explain it a bit more throughout the episode here.

It’s directly related to our topic. So DTC versus Amazon, how to try multi-channel operations here, in a sense that, well, shipping with Amazon, if you’re selling on Amazon is extremely competitive. Amazon has warehouses all across the country, and will ship way faster than you for most places. With the city, you can have your package the same day, next day, more or less. But if you’re a small merchant, or medium sized merchant, you have to ship across the country, there’s no way to get the goods that quickly there.

Manish: Yeah, you’re right Guillaume there because sellers, it’s very hard to pull this off. And Amazon-like fulfillment is not easy. There’s a lot of operational complexity and so on, but Cahoot handles all that just like Uber where the rider, for example, is not trying to connect with the driver, trying to negotiate the price of the ride, trying to alert the driver when to come in and all of those. So Cahoot has created a fully managed service for the seller, it is super duper simple, because they send the inventory to Cahoot fulfillment centers, and Cahoot takes care of everything from that point on, and for our fulfillment partners on the other side, just like I’ll continue to use that Uber analogy as a driver, we’ve made it super duper simple for fulfillment partners to fulfill orders on behalf of Cahoot, because we take away all the decision making, all the complexity that could be associated so that it’s not a distraction from the core business. And that’s all leveraging our technology, which is patented, we’ve got tons of experience doing this. And that is what makes Cahoot so special. We’d love to chat with brands and fulfillment partners who may be interested.

Guillaume: Let’s try to be as clear as possible. Where are we at so far? You’ve been building this network. How competitive can you be with Amazon let’s say with the prime same day, next day kind of fulfilling that Amazon has? Or is it like, per region of the United States? Or how are things shaping up right now?

Manish: Yeah, this is a reality. Cahoot is one of the only fulfillment networks of its size that offers Amazon seller fulfilled prime, so I’ll use a client example. We have a client called Kelly’s Books, they are a leading brand, they sell personalized children’s books, these are, imagine Cinderella in Spanish, that also teaches the kid to read and you can record voices on top of that, so that maybe it’s the grandfather reading the book to the kids, and so on. So it’s a very, very special brand and they’ve been growing, doubling year over year. Prior to Cahoot, they were using a bunch of different services. But, as we know, Amazon routinely changes the storage capacity for brands, even the ones that have been selling on Amazon for a long time. And they needed access to Amazon seller fulfilled prime because that 150 million prime shoppers, that membership is very crucial, because Amazon shoppers love the Prime membership.

So there’s a program called seller fulfilled prime, where you have to achieve two day and one day delivery. The metrics are super-duper high, it’s very hard to meet those standards from Amazon. So Cahoot has placed this Kelly’s Books inventory at 6, 7, 8 different warehouses throughout the country in the US, from Southern California to the Greater New York City area to the south, Texas and the upper Midwest and so on, you can imagine. Then Cahoot processes orders, retrieves the orders dynamically in real time, from all the leading channels, Amazon, Walmart, Shopify, eBay and all of the others, and then routes the order to the fulfillment center that will be the closest and cheapest that can get the order to the customer within the promised SLA, which includes in many cases we need as part of seller fulfilled prime, at least 20% of your orders must achieve one day delivery, not just two day. So the bar is really high. And we’ve been doing exceedingly well, this brand is doing really a fantastic job on execution and Cahoot is their primary fulfillment partner. So that’s just to give you an example of how this whole thing works.

Guillaume:  Right? Okay. You’ve made your own study in this regard. Regardless which ecommerce platform like Magento or Shopify or something versus selling on the marketplace, like what the brand sort of gives up, but the brand sort of loses if they’re selling in the marketplace or what they win and how do you push back or fight back as a smaller brand versus the Amazon marketplace?

Manish: Yes, it is well understood, well known that marketplaces are growing faster than DTC sites. I put marketplaces, Amazon, Walmart, eBay, Best Buy, Target Plus, all of these are marketplaces, because consumers love marketplaces, they trust the marketplaces. Because the marketplaces offer a diversity of products, there’s a very large selection. And because it’s also competitive because multiple people are selling the same product, it creates a sort of competition for the sellers to put their best foot forward, which means lower prices. Not only do the customers get a large selection, but a very competitive price. And then finally where marketplaces really win isn’t shipping and fulfillment because marketplaces in order to get ranked high on let’s say, Amazon, you not only have to offer a great price in order to win the buy box, but you also need to provide competitive shipping.

 Of course, if you’re using FBA, then FBA will target the Prime one day, two day delivery. But if you’re shipping on your own, your shipping offer has to also be very competitive in order to rank high, which is where marketplaces shine. And most DTC brands do not do that good of a job, regardless of the platform that they operate, whether Magento or Shopify. We did a full study of top 50 DTC brands on Shopify and big commerce. I can compare their offers to the ones on the marketplace, and I’m happy to share more if your audience is interested.

Guillaume: Yeah, sure. What key findings did you have at that study?

Manish: Yeah. We actually studied the top 50 sites on Shopify and BigCommerce and then looked for the same identical product on Amazon and Walmart marketplaces. And what we found, Guillaume, is that 60% of the time, the products are found cheaper on marketplaces than the brands DTC site and that is just one finding. Of course, on a marketplace there could be other sellers, resellers potentially selling but from a consumer perspective, if I want to buy a certain product, as long as it’s authentic, I really don’t care who’s selling it because I want the best price and I’m protected because Amazon ensures that, my payment information, all the other personal information is safe. So there’s a clear trend that marketplaces are performing better on prices. Now, we also studied the shipping behavior on these marketplaces. And we found that three out of four times you can not only get the products cheaper, but you can also get it faster on marketplaces than on the DTC side. So 73% of the time, you’ll get the product delivery faster on Amazon and Walmart than on the DTC site. So clearly, the DTC sites have a lot to do in terms of catching up if they want to compete with the Amazon and Walmart of the world.

Guillaume: Okay, more selection, cheaper, faster, and also something that we take for granted, there are many marketplaces and many sites that just like an estimated date of arrival, there’s a lot of private websites that don’t give you that option. So you’re like, Okay, I’ll check it out. When do I get it? Do I get it in a week, two weeks, in one day, two days? If you don’t offer that estimated date of arrival, that can lose your sales right there. I remember myself as a consumer sometimes not placing the order because I need to know when I get it because I need it for a specific date for an event or something. So that does matter for sure.

Manish: You are 100% right, we call it date-certain shipping. If you’re just putting up things like four to seven day delivery or two to three day delivery, the consumer cannot do that math or doesn’t want to do that math. I don’t know what that means, four to seven day delivery does it include the weekend? So when will the product ship? Is it counted from today? Is it counted from tomorrow? What’s your processing time? All of those. So that’s another clear advantage, as you rightly said, that individual DTC sites, most of them do not offer that level of what we call visibility into when will my product arrive, if I pick this option? In addition to of course marketplaces that reward free shipping, so any seller that’s offering free shipping will have an edge on marketplaces. Of course, there’s no such body to govern on your DTC site because you’re making the rules. But keep in mind that the winds of change are happening and brands and retailers need to get serious about offering and leveling the playing field if they want to compete on the DTC site.

Guillaume: Yeah, exactly. And the model that you propose as a solution here, say, hey, let’s all group together, let’s plan together, let’s create a power of distribution and network by creating alliances with people that were previously not aligned together, not coordinated together. So you’re coordinating the uncoordinated, so to speak, building a network, then you can even compete with Amazon’s shipping and so on. Nothing’s perfect, there’s positives and negatives. We’ve heard a lot about positives, what’s the downside of this kind of approach, or challenges or issues that someone might face?

Manish: Well, ensuring quality is always a challenge in a warehouse, even with Amazon Prime. I’m an Amazon Prime subscriber in the US and my family, and I we order quite a bit of stuff and we know that Amazon Prime routinely fails on a delivery promise, even though they say, okay, the product is going to arrive, let’s say on a Friday or Saturday, many times, it doesn’t show up till Monday. But I know behind the scenes, Amazon is working feverishly to ensure that those promises are met. So likewise, for Cahoot, the problems are very similar, holding our fulfillment partners and warehouses strictly accountable, which Cahoot does a fantastic job. My team is always on top of it, ensuring that products are delivered defect free meaning the right product goes to the right customer at the right time.

And of course, we need to work with carriers, UPS, FedEx, USPS, and many other regional carriers. Sometimes they screw up and it happens, products do get damaged in transit, for no fault of the carrier, and so on. So those are all the things that impact customer experience, because the customer may or may not be privy to all that information that hey, did the UPS damage the product? Or was the product damaged at the warehouse? Or did the product come damaged from the factory in China to begin with, because we can’t see all that. So the problems are real but Cahoot maintains a very, very high standard of accountability, and only lets the best in the business join as fulfillment partners. And that’s why we have a very strict vetting process to make sure that we are only bringing in the best and holding them accountable every single day.

Guillaume: Even Amazon with all their millions or billions they’ve invested in robotics, probably billions, they lose packages, they lose inventory. I speak with so many merchants that are selling on Amazon, and you have to claim lost merchandise from the Amazon warehouse that Amazon has no clue they’ve misplaced your package. So that happens everywhere no matter how much AI and robotics you put in place. Especially the Amazon warehouse is kind of messy, it’s not like sorted out alphabetically or numerically, the robot knows where it is. So if the robot goes to pick the package there and it’s not there, you’re screwed. Packages lost in chaos, basically. So that happens everywhere, that’s for sure. And the other important thing to remember when you’re talking like your own shop or direct to consumer versus selling on marketplaces, on marketplaces, you do not own the relationship with a customer. You do not own your customers list. Somebody buys from you from Amazon, but you don’t know who is buying from you.

You cannot send them an email and a text message and you cannot market to them after, do some remarketing and so on. So, this is huge because you’re losing the ability to build an asset which is a customer base. So it’s really like a money transactional relationship with Amazon. Thank you for the transaction. Thank you for helping me to grow my business but this could dry out and I don’t own the relationship with the customers, very critical point to keep in mind, to always diversify away from marketplaces so that you can own your own customer list and your own relationship with customers that you can send text and emails to. So to wrap up with this topic here, anything else top of mind that you think that merchants should know about how to thrive in this kind of multi channel operation and DTC versus Amazon?

Manish: Yeah, in summary on this topic, again, I would urge every seller to target an Amazon-like fulfillment. And I know that many sellers that I speak with, sometimes they’re not fully sold on the idea, because many of them will say, “Oh, my customers don’t demand it.” No, of course they don’t, they’re not going to come and tell you that, they are just going to go elsewhere. They’ll buy it on Amazon, they’ll buy it in other places. Amazon just recently launched this program called “Buy with Prime” which I know we will cover later on either in this podcast or another session. The consumer expectations are not getting any, any reduced or tempered. If anything, customers want their products faster, and they want their products free and fast shipping and solutions exist. I think sellers and brands and retailers should not think that they cannot do it affordably, I would invite them to come talk to Cahoot. We can do some analysis, we can tell you. If they are not merchants who have warehouses, whether it’s Canada or in the US that have spare capacity that run a tight ship, I would encourage them to also contact us if they’re looking to make some extra cash. So the world is moving to distributed fulfillment, my parting thoughts is that everybody should embrace it. Because if you’re not, you’re going to find yourself in a tight spot sooner than later.

Guillaume: All right. Well, thank you for sharing all that information, Manish. If somebody wants to get in touch with you, what’s the best way?

Manish: Well, hop over to Cahoot.ai. That’s www.cahoot.ai and fill out the contact us form. And if you want to connect with me directly, please find me on LinkedIn. I’m very active. Just search for my name, Cahoot and please connect with me, message me, I’d love to chat with you.

Guillaume: Awesome. Thanks for being here today Manish.

Manish: Thank you for having me.