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Cool Times Podcast: Selectivity vs. Density with Todd Jessup


Todd Jessup

An abbreviated transcript of the conversation below:


Vince Free:

Well, welcome back to Cool Times podcast, where we talk all things cool about the cold storage construction industry. Today we have a very diversified guest, if you will. He's got his hands in many things, man. He's flexing his muscles, if you know what I mean.

We've got the president of FLEXSPACE and the co-founder of FlexCold. This podcast, my friend, is something that everyone's been waiting for, our good friend Todd Jessup. What's up my friend?


Todd Jessup:

Hello. Hello. How are you guys?


Jenna Free:

We're good. Thanks for being with us today.


Vince Free:

Good. We're good.


Vince Free:

They will be in the air. Well, Todd, for all of our audience that might not know who you are, I mean, you're already a legend in their industry and growing in popularity very fast. Tell everyone who you are, what you do. Tell us who Todd is.


Todd Jessup:

Thanks for having me again. Appreciate the invite, and great to be with guys and be cool on the Cool Times Podcast here.


Jenna Free:

I like it. I like it a lot.


Todd Jessup:

Yeah, so again, Todd Jessup. I've been in the food supply chain really my entire career, shortly after getting out of school, and I've really grown to love the industry. It's very a dynamic, opportunistic industry that has seen a lot of opportunity to really dig into technology and better practices, and just ways to invest in different areas that we've seen. We've seen more opportunities in front of us as well, but nonetheless, I started FLEXSPACE about 2014.

About 10 years ago, and it was really to drive efficiencies. I really found some technology out of Europe that was really prevalent all over the world, and underutilized or not used at all throughout the US, and so sort of introduced and pioneered that product into the US, which is simply mobile racking. It's a product that really was applicable, especially in cold storage space, where costs of these facilities are extremely expensive. Everybody's looking to be flexible with and nimble and able to adapt to customer changes, needs, so the selectivity, the access, the speed, as well as what it would do to drive the overall economics of the project to make the return on investment faster, it just checked a lot of boxes and was relatively ... It was something that was a little ahead of the time, but now as we turn the page and we look at sort of inflation, what we've realized, the cost of these facilities have just exponentially gone up.


Now we've got capital market issues, so the cost of money to basically invest in these facilities, so you kind of stack inflation on top of the capital market issues, and it's really making it hard to pencil in the way we always did it in the past. We've enjoyed a run at that. I would say about 2019, 2018/2019, I started realizing that the product really wasn't just the design of the interior, to densify and provide better access and efficiencies from a labor standpoint, but the product was really, we had aging facilities, 35, 40 years old, and as the buildings are going taller and there's fire suppression and refrigeration, and so there was a lot of modernized things that were happening outside of just what we were doing from a densification standpoint that warranted the need to invest and update the infrastructure.

I looked at it as sort of the certificate of occupancy was now really the product, as opposed to inside the box. Really trying to help us keep up with population growth, keeping up with the trend of frozen food growth, looking at replacing some of the old infrastructure that really couldn't provide the services or the value to the customers. Perhaps they weren't even in the right logistical location. A lot of these facilities were built sort of next their cousin's farm that processed hops, or what have you. In the US kind of 35, 40 years ago, things were done a lot differently than they are now, so we're really looking at it. There's this real estate transaction, where, why do you put a facility where you put it? Who's the customers that are going to be in there? There's that real estate side, and then you have that operational piece that, what are those services that you're going to offer those customers that are in that logistics crossroads? Then you have obviously the technology piece, of, how can you leverage technology to make it faster, cheaper, more efficient, less labor, less cost? We really focus on that cost per unit in every decision we make.


Jenna Free:

Wow.


Vince Free:

That's crazy. I got to see the first FLEXSPACE Mobile Racking at RLS in Sturbridge. I got to see it, and I was walking the job and guy's like, "Hey, check this out. This is pretty cool." I'm like, "Yeah, I know what this is. I never got to see it operate." Dude, it's crazy, the controls and electronics, and he's like, "If I need to get into aisle eight, boop, boop," and all of a sudden it just- Everything's censored and safe, so if something's in the way, the rack won't move, but man, it just opens up. It's like just, boom. There you go. Dude, it's crazy.


Vince Free:

It's cool. What's the added ... I'm going to get real nerdy with you, but so, let's just say you have a 50,000 square foot freezer. Right? If I have a normal racking system in there, if we put in a FLEXSPACE system, how much more storage capacity can you gain from using your product versus a standard rack system?


Todd Jessup:

Yeah, I mean, every building, shape, size can be a little different, but just sort of spit-balling, say 50% more product.


Vince Free:

Well, think about it. That's like, if you have to build that much more of a building to get that space.


Jenna Free:

You need that much more.


Vince Free:

The money you could save on construction and the land or whatever, right?


Todd Jessup:

Exactly. There's been a lot of education. I love to learn, so I mean, I've learned a lot. You mentioned RLS Logistics, Tony Leo, the late Tony Leo was a good friend, and probably one of the first early movers that became an incredible friend as well as partner in the industry. I'm sure you guys can attest to sort of, those people that sort of helped get you off the ground and going. We really together locked arms to really help understand, because at that point, when you just sell a product, you really don't understand the benefits to the operations, but you want to learn, what is the value proposition? What is it you're offering? Through that effort, we really were able to refine and get down to some really good stats on, not looking at the rack price versus the building price. Everybody looks at things kind of in silos. Really, at the end of the day, the entire development is all about how many pallet positions can you get, and what's your cost per pallet.


Vince Free:

Yeah, yeah. That's it, at the end of the day, yeah.


Todd Jessup:

Nothing else. Yeah. Nothing else matters, and so there's several different ways to increase your density. There's different ways to do that, to ultimately help decrease your cost per pallet, but then you start playing a game of selectivity, and ...


Vince Free:

What about your operational cost, though, too?


Todd Jessup:

There you go. It's always been, in the industry, with conventional facilities' racking, you really have these competing forces. You either had density or you had selectivity, and those have always been the competing forces, that you've either erred on one side or the other at the expense of the other. You're robbing Peter to be Paul, so to speak, right, so with the mobile rack, you've got the single select, so you're literally one touch in the building, one touch out of the building. Everything's easy to inventory, everything stays on the aisle, so there's a tremendous amount of benefits operationally, but then you turn around and look at it from an economic standpoint, arguably, because of the selectivity, you're not really losing those underutilized spaces, or the occupancy rates can push much higher because you have access to every single location, versus storing things in front of things that are not alike, or different date codes, or eventually ... The world's not perfect and it doesn't work in perfect pairs. That's where you're really able to drive that occupancy rate, so ultimately, it's revenue optimization, it's op-ex optimization. It's just trying to look at the front end real estate transaction of, how do you drive your cost per pallet down? Then, on the op-ex side, if you're getting 50% more revenue on this 50,000 square foot building, you're amortizing your costs over 50% more units. Well, guess what your margins do? They exponentially increase, right?


Todd Jessup:

Yeah, it's still resistance. The only way I can equate this journey to tell you is, it's the topic of technology, and you have your early movers, and then you have the people that are following right behind. They don't want to be the first, but they're following right behind, and you have the people that just dig in their heels and will forever and always argue to the day they're dying that it's snake oil. That is, to this day ... I mean, it's almost like you just sit there and see exactly what's happened. It was, back to Tony Leo and some of the guys that were, "Come on, let's do it in cold storage," and had been doing ASRS since the eighties. It's like, they were these early movers. They took risks to get a competitive edge, right, and there's people that fell in right behind those guys. Then, there are still people to this day just digging in their heels, and I don't know how you make it work, with the way these buildings cost today. The scariest thing is, you're signing 15-year leases or you've got these notes, right?


Jenna Free:

Well, and there's been so much change and so much expansion of our industry, that even just in these last few years, that to me, if you're following along with that, it makes sense to have something that's adding more value to your building.


Todd Jessup:

Yes, so that is sort of what prompted going to that next step, is the frustration of seeing projects come and go back to the old school way. You sit there and you do this layout, and you're sitting there talking to them about the money you can save and the return on investment, and you're really getting into the economics to give them a competitive edge, and it was just, time and time again, it was just, another one bites the dust. That was that burning in my belly. Like, man, I mean, if we can't do this, then it's like, we've got to go bigger to get away from the product being ... Selling the product to people. We've got to deliver new facilities that are state-of-the-art that really drive value. Now, it's like, it's just one layer. It's just one layer of the cake, is the racks. Now it's refrigeration and power and labor, and you've got all these things. I mean, everywhere you see it, it's like, "All right, let's do time studies. Okay, where are we saving money and how do we continue to build it faster, cheaper, and better?" It's been a great journey and we've learned a lot, and there's a lot more for us to continue on with.


Vince Free:

Sure. Yeah, that's wild. We don't see it as much as you see it, but we get it all the time. "Hey, let's do a six-inch exterior IMP panel here instead of a five, but how much money does a five save me, and what's the cost of a five versus six over the course of how many years, with energy loss?" It's like, we get those questions all the time. I mean, look at refrigeration. Should we do ammonia or should we do a packaged freon system, and what's the difference and what's the cost, and operational cost? What does that look like? These are all these tiny little things that you can bundle together, like you said, to kind of put out an ROI of what that looks like. We're going to get into a little bit of FlexCold and probably your dealings with some of that stuff, because you have to make some of those decisions now, from a big picture. We can talk about that later too, but yeah, it's a lot to think about. I mean, the FLEXSPACE product itself is incredible, and I saw it. I mean, you see it at CEBA, you see it ... You see it because you're presenting there and you're showing off your goods, right, but when you get to walk it and see it live and how it works, it's something you have to see. It's pretty incredible.


Todd Jessup:

Yeah, I mean the big thing is, it's not a lot of flashing bells and whistles and shiny objects.


Todd Jessup:

But it's practical. It's practical, and we have a labor crisis. We've had a labor crisis for ... This has been building for a while, but it's like, you jumping straight to ASRS, in some ways, in some areas is good, but it's like, when you automate, you're automating redundant patterns and things. It's like, in this case, it's something for ... The mobile racking just provides a solution, and through that densification, you're freeing up cash for the bottom line, and then you reinvest in employees. You're just back to the conventional warehouse. It's like, as you're getting squeezed on those margins, you're trying to take that off of your payroll expense, and eventually people are going to find a different job that's not going to be inside of a freezer, because they can make more money elsewhere. How are you thinking about about being able to be smarter and sort of shift the paradigm of how things have always been done to really free up cash to pay people and invest in the business?


Vince Free:

Yeah. I think everyone who's listening wants to know about the development and launch of FlexCold.


Todd Jessup:

Yeah, so we were actually brought in by a design builder to promote on a project in Jacksonville, Florida, mobile racking. They had land constraints. The building was a bit of a ... It was a weird shape, so there was a lot going on, but they were trying to build cold storage and saw the opportunity to build cold storage. We were just brought in to sell mobile racks to help make use of that smaller piece of land that those guys had and basically be able to help drive the business case behind it. As we were selling mobile racks, which they totally bought into, and were on board with seeing the advantages and how it would ultimately relate to them being able to develop this piece of property, they had capital constraints. We had seen this going on with a lot of our customers, that while there was a lot of consolidation within the industry, a lot of the customers that were still out there that weren't selling and they weren't growing as rapidly as you would think one would do if you had an established business and there's consolidation, then there's very few people left to compete with, so you just grow.

Ultimately, it was capital constraints to be able to build these buildings. When we were trying to sell the mobile rack job in Jacksonville, we had already started down the road of looking to build out a real estate investment development platform that would take from mobile rack to sort of the entire facility. Looking at getting certificate of occupancy for a facility this modern, so we were looking to invest into the real estate building while we were trying to sell the rack. Ultimately, we sell the racks, we take some of the profits and reinvest it right back into the customer to help them get the building off the ground and operate. We were doing it to be a better partner, which is what the mission really was. Instead of just looking at one facet of helping somebody, how do we provide more value? That's where we kind of started down the road of really getting into the seat of the real estate, investment development, raising capital to help stand this building up. Along the way, we got that deal done to start that building, and the gentleman that was going to run that as the president passed away two weeks after we capitalized the building.


Todd Jessup:

Suddenly we were front and center of, "Now we've got to operate this thing, we're going to be working on this." We basically pivoted and started hiring seasoned operations folks that understood how to operate the buildings and put a team together. No startup is a fairytale wedding by any stretch, but ultimately, the whole journey has been overcoming adversity, meeting challenges head-on. From the very early days of people being resistant to new technology and mobile racking, to, how do we basically ... The whole cold storages world's consolidating. How do we continue to invest back into the customers that are sticking around, to help them be successful? It goes from trying to give them a competitive edge to helping them understand real estate finance and development, to get that, and then standing up and operating business that actually now serve food processors that are in the area of Jacksonville, and wherever FlexCold goes beyond. That's kind of the real short version of how we've ended up going from just sort of a technology or integrator type business to looking at it as, there's more to it than just looking at that one piece to the puzzle, and then, it's all about driving value to the operating business.


Vince Free:

How many FlexCold locations are there right now?


Todd Jessup:

We have the one location in Jacksonville, which we opened just over a year ago.

We're 14 months into operations. They're doing a phenomenal job. We've got a great team in place.


Vince Free:

Awesome.


Todd Jessup:

Yeah, so we're really doing good. We're under construction on phase two, so as soon as we sort of turned on the refrigeration and started opening up doors, we filled it up pretty quickly and realized the time was now to take advantage of the additional land that we had been able to purchase. We're under construction now on phase two and should be opening next summer.


Vince Free:

Awesome. Not that I want to dangle carrots in front of the entire audience that's probably salivating at the mouth, but how many of these buildings do you want to build in the next five years?


Todd Jessup:

Oh, man. I mean, we were really thinking if we could get three to five done, there would be ... Three to five year span, it would be great. I mean, the recent times with the capital markets, I think it's ... Again, we're a team of thinkers to overcome adversity, so we are actively engaging that, as I know everyone is. We have two more developments that are ready to go. We may be able to get those underway in the coming months.


Vince Free:

I got in the industry in 2005, end of 2005, and when I was calling on some of these old cold storage plants out in the Northwest, like Washington, Portland, that area, Oregon, dude, there's some old cold storage warehouses out there, man, with just concrete brick walls and some cork on the wall. I mean, dude, there's some old buildings out there, man, and they're still operational.


Todd Jessup:

That's what I was getting ready to say. It's crazy. I mean, they're operational and most of them are full, because it's just, the demand is there and you just don't have space. It's something, I go back to some of the guys that are here with us that are in the real estate area. They had a career in a lot of the multifamily apartments, but it's kind of back to the boom of apartment buildings that started out, I think, 2004 or five, something like that. They were just building apartments everywhere, anywhere they could find, and then it went into student housing, and they're sort of densifying, right? How many more beds and units can you get in that property?


Todd Jessup:

It's just the same idea, but you go back to that, and it's like, there was this boom. I remember talking to a good friend that was within that business, a developer in the business, and I said, "Man, these guys, somebody's going to end up choking on all of these apartments." He said, "They're not even keeping up. As many as being built, they're not even keeping up with the demand." I do relate it back to cold storage the same way. The population growth and the need for frozen space is growing at such a rapid rate.


Vince Free:

Totally. I mean, look at buy versus rent. Right? I mean, just think housing market. Houses are so expensive today. I look at the kids getting out of college, how are they going to afford a 750 to a million dollar house out of school? You don't buy. They're renting, and they're renting for a long time, and maybe forever, and there's nothing wrong with that. Just, you look at it the same way. You look at all these food companies, right? I'm sure they would love to have their own cold storage, but it doesn't make sense for them financially to build a huge 3PL refrigerated warehouse to store all their product in, because they maybe have small manufacturing plants all over the US and they need small little ... They need space here, here, and here. It's pretty wild. I mean, the industry's growing.


Todd Jessup:

Yeah, and it's like, if you're manufacturing product, food or whatever the case is, I mean, every business, no matter how big or small you are, everybody's got the Santa's wishlist of what you want to invest or buy or invest money in, right, and you're always trying to prioritize what it is. Well, I mean, if you're manufacturing product, that's how you make money is making product, then to go build a business to store it, you're taking money out of what you do well and what you're focused at.


Vince Free:

Yeah. Where do you see the cold storage demand for space, from now ... Say, we're rolling up on the end of 2023. Where do you see the next three to five years in regards to growth? Do you see it leveling off, dying down, still a constant increase? What's your gut?


Todd Jessup:

I mean, really the question is, I'm not saying you take the old cold storage facility that you mentioned earlier. I don't know that you totally take that offline, but you definitely probably repurpose it, but it kind of gets to a conversation of, how old is too old to operate a building as a warehouse? What is it? Is it 15 years? Is it 30 years? Is it 60 years? I don't know the number, per se, right now, but what is that age? Because at some point, it's cost prohibitive and you can't even really do ... Provide the services and maintain maintenance and invest. I mean, it just becomes a losing game, so that first and foremost I look at is, you've got, one thing is, you're updating infrastructure. How do you take, if the average age is 35 or 40 years old on these facilities across USA, how do you get that average age to be 15, 12, eight, whatever the case is?


There's a replacement of existing product. That's step one. Step two is then, now what are you looking at from population growth, as well as trends of consumer buy? It's just, how much demand is there for frozen food that currently isn't even really in the market because there's no place to store it? It's like, how much more demand is there? That's what I also don't know, is exactly, are we at a 20% deficit or are we at a 15% deficit, or something larger or smaller? Between those two, I do think ... Along with, I think, the logistics play, is really, where does this facility need to be and why? I mean, there's a lot of ... We talked about, there's a lot of driver shortages. Well, there's drivers driving thousands of miles, taking product places, for a couple of reasons.


One is, the services that they need for that product are thousands of miles away, and then they bring it thousands of miles back, so it's completely inefficient, or the issue is, there's a service company that they can rely on. The processor relies on those guys to execute the work and scope of work that they need, so that's worth the miles and miles to drive. You kind get back to the whole logistics map of, "We've got a driver shortage, like the labor shortage, but we're really inefficient and not doing things well." I mean, if you need a facility that has X, Y, Z services, then that X, Y, Z services needs to be either right there where that processor is or where all that destination of the product's going to go, maybe out of a port or maybe into a client of theirs to be further processed, or whatever the logistics game is.


Todd Jessup:

We were actually working through, for the FlexCold business, values and mission statements and such last week. Everybody's throwing out words, meanings, things like that, and they dropped that stuff in AI, and oh my God, the mission statements and things that were coming out would've taken years for us in that room to agree on or engineer. It's incredible. It's unbelievable. That stuff is really crazy, but look, I think ... I'm getting back to really answer your question, is, we've been ... Technology today is so much further advanced than it was five, 10, 15, 20 years ago, right? Think about the jobs that are now done. Kind of use Ford motor company, right? You look at the old assembly line of building Model Ts or what have you, and you look at what a production line looks like today, right? Yet, we're at the greatest job deficiency. Labor deficiency is at an all time high, so my gut is, it's like, you can't outpace ... With technology, you can't outpace the problem of just not having enough of the right people to do the type of work that needs to be done. It's leading to further educating people, and it's leading to better jobs, of getting people, instead of kind of coining a machine or whatever, just over and over and over again, right, now somebody's learning something. They're challenged. They can grow and they can be in a career to be better.


It's all positive things. We have to embrace technology. It leads us to a much more dynamic and fruitful future than trying to dig our heels into the way we've always done it. You've got to be a part of the solution, but not part of the problem. Right?


Vince Free:

Totally. I have a question about the FLEXSPACE product that probably, we have a listener probably sitting there behind the wheel of their car being like, "Man, ask this question." All right. Let's say we want to use your FLEXSPACE Mobile Racking System. How do we buy it? What's the lead time? Is there a design phase? Is there a drawing process, shop drawing process? Start to finish, and then total lead time to get the product built and shipped, what's all that?


Todd Jessup:

Yeah, I know. I know, I know. I know. It's amazing how many poker players we've got, but it's like, we want to be in there from the beginning, because really what you want to do is design your process first, and then you build the building around the processes.

It's like, where columns go, where panels go, where doors are placed.


Vince Free:

Makes sense, makes sense.


Todd Jessup:

Exactly where the under-floor pits, heat pits are. All that stuff is all really designed around what the purpose of the building is, is to store units. If you're thinking about the units at the end of the project instead of at the front of the project, you're probably going to lose easy layup units. I mean, just by moving something a little bit here or there. I mean, you guys can all relate to going into the Walgreens or what have you, or the CVS, and you're kind of walking around the pole in the aisle and you're kind of like, "That's odd."


Todd Jessup:

Really get the team together, put this thing ... What's the objective? How many pallets? Who's your customer? Are you bringing in ice cream? Are you bringing in chicken? Is the chicken fresh? Is the chicken frozen? Is it export? Is it import? Or are you staging USDA, FDA? It's like, case picking, boxing, x-raying, thawing and stacking. I mean, what the heck are you doing? You've got to know that.


Todd Jessup:

It's literally about, when shovels hit the dirt and start moving, you've kind of got ... Let's say it's a 12-month project timeline. You've kind of got five, six months of site work and going vertical to get it dried in, and then the last five months or so to kind of do all the finishing up, interiors and startups and all that good stuff. Lighting.


Todd Jessup:

I think for me, it was back when I started FLEXSPACE. I brought over something new to the US that was basically unheard of and unknown, and I felt like it was the right thing to do, and I felt like it was applicable to what we needed, even at that time. There was a lot of risk there, and not recognizing, again, how resistant people and technology would be. I would go back to, so I mentioned earlier, my friend Tony Leo, and the two of us, I took him to over to England to see some operators using mobile racking in 3PL environments, cold storage environments. I can recall going into the first facility and him walking in in shock and awe and sort of pressing a button and watching it move. Later at dinner that night, he said, "I knew within the first five minutes this thing would work for us." There was no snake oil to it.


Todd Jessup:

It's kind of like, once you ... Then it's kind of, it's one thing when you take the risk to basically bring some value to the industry and try to help people take a leap forward. It's one thing when you do that, but it's another thing when you're able to really recognize and see that it truly has helped people densify their facilities and make better economics out of it. There's one thing to preach on it, but it's another thing, once it goes in, it doesn't work or something. It's like, there's a lot of reputational risk and there's a lot invested into your whole livelihood. A lot of this is all built on trust and people taking a leap of faith with us, and now it's really not even about the product. It's about really that reputation, and who's going to be there when you need them, right? I mean, these things are great. All this technology's great as long as you've got people to rely on and support it when you need it, because people don't stop shipping groceries. That's going to keep going and going and going, so it's important that everything's moving and grooving and making it happen.


Todd Jessup:

It's really, at this point, it's a service based business built on trust and reputation, and we take a lot of pride in what we do and who we do it for, and have truly appreciated all the partners that have believed in us. I know you guys kind of feel the same way.


Jenna Free:

Yeah, absolutely. I mean, speaking of reputation too, congratulations on being a top workplace in South Carolina this past, or well, this year, this current year. Did you envision ever seeing your company there when you were starting it?


Todd Jessup:

I didn't, but it's funny. I remember picking up a paper. It was one of your local business papers, and seeing a list of these top workplaces. This is back when I was renting a little office out of an insurance agent's back room, which is-


Vince Free:

I know the feeling.


Todd Jessup:

Great story for another day, but anyway, I picked up this paper that had been shipped to them and saw that, and really, it set some goals to basically get on those lists. I will say, back to, people do business with people. Right? I mean, it's not just the customers, it's the people on the front lines. You guys mentioned your guys in the field. Nothing happens if you don't have people that surround themselves around the vision and you invest in them and teach and train and coach and work with them to be successful. It's one thing for me to have a great idea or a bad idea, even, but it's another thing when you can get people around that and start moving mountains to make things happen. Even back to the customer, I've always sort of just put others ahead of myself and really looked to watch other people be successful, and knowing that ultimately someday, somehow, it'll transact and do something good for me.


Vince Free:

That's freaking awesome.


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