This Week in Logistics News (December 11-15, 2017)

One week to go before we go on hiatus for the holidays, which means I have one week to finish a million things on my “To Do” list.

So, without delay, here’s the supply chain and logistics news that caught my attention this week with some brief commentary:

Grocery delivery has been the toughest nut to crack — that is, profitable grocery delivery, particularly here in the United States.

The main challenge with grocery delivery is the same today as it was when Webvan crashed and burned more than a decade ago: getting enough delivery density to minimize transportation costs, which makes a big difference in a low-margin business like grocery, and providing customers with delivery options at the point of sale that are reasonable, affordable, and reliable.

But the battle continues, and this week Target sought to level the playing field with Walmart, Amazon, and other competitors by acquiring Shipt for $550 million. As reported by the Wall Street Journal:

Shipt, like rival Instacart, uses thousands of contractors to buy products at retail stores and deliver them to customers. It charges a $99 membership fee and its shoppers buys products from local stores, including grocers like Kroger Co. and Costco Wholesale Corp. Shipt typically sells items at a slight premium to the in-store price, and charges delivery fees for orders less than $35.

Shipt, which was founded in 2014 in Birmingham, Ala, currently offers its service in more than 70 cities through 20,000 shoppers. The startup, which has about 275 employees, has raised more than $60 million in venture capital, from backers including Greycroft Partners and Harbert Venture Partners.

Executives didn’t disclose whether Shipt is profitable or how much revenue it is expected to generate this year. Target said it expects the transaction to add to its earnings starting in 2018.

Grocery delivery in the U.S. is still less than 2 percent of the market. As I wrote back in 2014 in Webvan 2.0: If At First You Don’t Succeed…, the big question in my mind is how many people (households) will ultimately choose home delivery of groceries versus going to the stores themselves. The reality is that some people love the idea and want this service, while others prefer (or still see the need) to walk the store aisles themselves.

Speaking of profitable delivery and creating delivery density, FedEx and UPS want more consumers to have their packages delivered to a local grocery store, pharmacy, or other neighborhood location instead of their houses. “While revenue is rising as UPS and FedEx deliver more packages by truck than ever, profit margins on those sales are shrinking,” according to a Bloomberg article published this week. Here’s an excerpt:

[UPS and Fedex] are expanding neighborhood locations where customers can pick up parcels or drop off returns in lieu of the usual front-porch option.

In a major expansion of its new FedEx OnSite program this year, the courier opened parcel counters in 7,500 Walgreens Boots Alliance Inc. stores across all 50 states. More than 500 grocery stores, including Kroger Co. or Albertsons Cos., also have FedEx pick up and drop off locations.

UPS launched its U.S. Access Point network in 2014. Not counting thousands of sites inside its retail stores, the shipping company now has about 4,000 locations in places like grocery stores, dry cleaners and “mom-and-pop” merchants.

Of course, to have any significant impact in easing margin pressures, “The adoption by consumers is pretty important for those to be successful,” said Lee Klaskow, a Bloomberg Intelligence analyst.

To echo Klaskow’s point, UPS and FedEx can build this delivery and drop-off network, but will consumers come?

I also find it funny that the grocery retailers are investing a ton of money and effort to enable home delivery, while FedEx and UPS want you to go to the grocery store to pick up your packages. I think most consumers actually want the exact opposite: they want to go to the grocery store to pick out their fruits and vegetables and meats and dairy food items, and they want to come home and find their packages delivered to their front step or mailbox.

Public service announcement: there is no such thing as free delivery.

And with that, have a happy weekend!

Song of the Week: “Creature Comfort” by Arcade Fire