Saturday, May 24, 2014

Should Zingerman's fear same day delivery?

Another day, another article about how someone is launching a same day delivery service. This time it's Google. They're going to compete with Amazon. Who's now also competing with eBay. And so on.

Should we be worried about any of this at Zingerman's Mail Order?

In general, it pays to be worried about Amazon. They understand retail, they have good service (as long as you don't want to talk to anyone) and they have the cash—and willingness to spend it—for experiments like no other company on earth. And I don't mean experiments like drone delivery. That was an emperors-new-clothes idea that won't happen, a PR stunt that, for some reason, the press fell for. Amazon may experiment in other difficult-to-copy ways, though, like creating local (human) delivery forces that directly compete with UPS and FedEx.

On the other hand, I have zero concerns about Google competing with us. Whatever is in their company DNA, giving good service to customers ain't it. Their adventures in retail have been mostly disasters, I don't expect this to be any different.

But thinking more generally, should a small online shopping company like ours be afraid of these experiments in same-day shipping? Should we be worried about all these super-fast delivery services since everything we ship takes a day or two to get anywhere? 

In the short term, no. Why? The answer lies is in how these companies make same-day delivery work.

To do same-day delivery you need very short lead times on the stuff you sell. The way you get very short lead times—I'm talking hours, not days—is by having all your final inventory on hand within a short drive of your customers, or making it to order, like a pizza shop makes pizzas to order. Make to order is out of the question for Amazon so they need inventory.

Same-day inventory must be reliable. When customers ask for it you need to have it on hand at that moment, you can't wait for it to be delivered to your warehouse tomorrow. To ensure reliable inventory without stocking gazillions of units of every item you need to be able to forecast demand very accurately. To do that you need demand to be steady. What kind of items are demanded steadily? Things people use all the time, like milk and toilet paper. And the greater number of people that use them, the more steady the demand becomes since it's averaged over a larger population. So the way to get really steady, forecastable demand, is to sell staple items to lots of people. In practice, that means Amazon is going to park a huge warehouses of paper towels next to huge cities like Chicago.

That tells you what sort of business they're out to compete against. They're going after grocery stores and smallware retailers. This is about saving people the hassle of driving, parking, finding, paying for and hauling their own essentials. If you're a small company that sells mostly commodity off-the-shelf items in a big city, you should be worried. But for those of us whose primary business is shipping hard-to-find gifts to suburbs it's not very relevant.

What about the long term, should we worry about that? Well, as they say in economics, in the long term we're all dead, so there's that. But generally speaking, anything that reduces barriers to buying online helps online sales. One of the biggest barriers to online sales is time. You can go get something at a nearby store faster than you can get it from an online store. To the extent that barrier is reduced—or removed—the more people will shop online. If some companies can offer it and we can't then we're in a worse position. That's a lot of ifs, and that's a lot of time—a lot can happen before they're answered. I'm happy to watch companies with deeper pockets than ours fight it out and figure it out first.

It's interesting to watch this version of retail history repeat itself. Delivering staple items is essentially a very old business model brought back to life. We used to have all kinds of everyday needs delivered like ice, milk, eggs and coal. Some companies, perhaps unaware that the 20th Century was happening, never stopped.

This kind of delivery used to exist primarily because people lacked personal transportation (which is why they're still around in some cities where many people don't have cars, like New York). Today, deliveries are returning mostly because the biggest, best retailers like Amazon don't have physical stores and, frankly, don't want to build them. We used to think of these internet retailers as national, then global. They still are. But with same-day delivery, Google and Amazon are now going deep local.

Monday, May 12, 2014

Recent Reading

Hormone free. Antibiotic free. How about mafia-free? A new way to label food.

Let me explain. No, there is not time, let me sum up: the mind boggling problems of the standard meat industry in 1,000 words. (Spoiler alert: you can avoid all this by eating no meat or paying more for it.)