DEEPER DIVES: Diversify Or Die?

Good Morning,

First, as always, thank you for joining.

Last week was all about learning.

Comments I made with respect to route optimization stirred up two meetings with last mile providers in Australia. I do most of my work in the US, Canada and the UK. It was interesting to get first hand knowledge of the state eCommerce Down Under (especially since the likes of Amazon are still relatively young for them). More to come here hopefully 😉.

The first half of the week was dedicated to learning, while the second half focused on giving back. My podcast with the team at Sifted dropped on Thursday (hopefully you caught my two most important questions).

Wednesday it was a live LinkedIn audio event with Kevin and Timur. It was my first time doing that format - loved it. We had a great conversation on Carrier Diversification. Today, I’m going to give you some specifics that I didn’t get into during the show.

Before we do, one last thing. I’m working on an archive.

Deeper Dives is not published publicly. That’s by design. It did get me thinking however. Since the newsletter is growing every week (and I don’t like to recycle content), how do new subs get those insights from the issues before they joined?

As soon as it’s set up, the link will be shared only here - for you.

Here’s what this issue brings:

• Carriers are increasing rates or dropping service. As a provider or a retailer, I’m sharing strategies to help you lower cost and keep customers smiling.
  

• I defied the algorithm gods and posted twice on Saturday. It was a quick hit to highlight how easily you can make an impact to your customer experience through simple operational changes.
  

• “You’ve often criticized food delivery not being a sustainable business model. What are your thoughts about grocery delivery?”
  
  I can only assume the question above from my AMA form is from the CEO of GoPuff after last week. My take below.

Diversifying Might Save Your Business. But It Can Also Kill You

When I was in the food industry, I was responsible for the DSD (direct store delivery) moves to some of the biggest grocers in the world.

This was an important part of my company’s business. At one point, 80% of the volume was going through the major retail channel.

When things were running well, everyone was happy.

But if we started having issues with our delivery performance, everyone wanted my phone number - and not for anything fun.

See, that business was very procedural. Stores would want to have their deliveries a certain way. Schedules were extremely strict and there was a host of health and safety policies (not to mention they were also hauling my assets).

While I could have opened that business up to more transactional activity from the market, it never seemed worth it when evaluated against any potential customer service issues (and negative business impact) from a string of incorrect or improperly executed deliveries.

Because of that, we had heavy relationships with our core carriers. Honestly, those carriers saved the day more times than I can count. Incredible people.

You can imagine how difficult it was when I had to take a two carrier duopoly in one of our biggest markets, and introduce a new crew to the mix.

No matter how much I respected those carriers, it was my responsibility to ensure business continuity and flexibility.

(Years later, one of those original two ceased operations very suddenly - you just never know)

Making It Easy Has Impact Too

A few weeks ago I had a conversation with a well known retailer about their go to market execution.

A $1.2B a year business, that is 90% leveraged to FedEx and shipping from one DC.

Every customer order that is fulfilled (within 2 days) leaves from the same place each day.

As a recovering shipper (I’m joking - I thoroughly enjoyed those years), I know exactly how and why that happened.

• Maximum volume to one carrier for best price

• Least amount of management (one carrier, one account, one rep, etc)

• Reduced errors and simplified processes

• One invoice (this matters way more to shippers than people think)

What makes these decisions hard, is that it probably was a fantastic decision… at some point.

No one puts projects forward that make the business worse.

That’s one reason why it can be so hard to get a customer to change how they do something, even when the market is screaming at them.

Real Truths About eCommerce Diversification

Even if a retailer or brand would want to move volume to other carriers, it’s going to be an uphill battle.

The biggest advantage that UPS, FedEx, Your Country’s Mail Courier and Amazon have is their infrastructure.

With the pressure to hit 1-3 day delivery timelines, the challenge is real.

There isn’t any solution available that a shipper can take advantage of that will replicate the ease and simplicity of working with one of the nationals.

No matter what they do, they will have to take on more management, build more relationships, process more invoices and manage changes with multiple different people.

What Do You Do?

I’m not sharing any of that to suggest retailers shouldn’t diversify.

I’m sharing that to help frame the right context, to get everyone aligned that it’s not without work, challenges and headache.

That being said, what can you do:

RETAILERS / eCOMMERCE BRANDS

• Understand when it makes sense to start up a new facility. Having your inventory in more than one location can be the keys to better options in different markets.
  
  Do not however, put your inventory everywhere. You will burn cash like crazy.
  
  Strategically identify segments of your market and meet those needs first.
  

• Design to collaborate. In order to get the most out of alternative arrangements (whether it’s air freight or zone skipping movements), your volume is going to have to be paired with other brands. Don’t create policies or procedures that are outliers or too hard to follow. Align cut off times of your orders to make sure you can hit those shipping lanes. Simply and standardize your packaging materials and your pallet construction and your labels.
  

• Start working to shape your demand. If you continue to allow Amazon to set the bar for customer expectations, you will always be playing catch-up. There are only so many ways you can get product from anywhere in the country to a customer in 1-2 days. Holding onto this only limits your opportunities.
  
  Instead, start changing your offers. See how you can incentivize customers to slow down - give yourself more time to move product efficiently and with networks that aren’t at the scale of Amazon / UPS / FedEx.

WAREHOUSES & LAST MILE PROVIDERS

• If you are a warehouse, your dock has never been more valuable. Regional last mile carriers may not have all of the facilities / terminals they need in order to handle (and possibly sort) eCommerce freight. Picking and packing is your specialty. Take advantage of unused space on your dock to be a temporary cross dock or hub for smaller last mile carriers that can offer retailers lower rates but need somewhere for product to land.
  

• If you are a regional last mile player, identify partners to help you offer middle mile activity. This would have “you” do the pick-up at the retailer facility and move the product to your sortation facility. This keeps simplified invoicing and relationship management for the retailer in place (because you will handle it all).
  

• Stop being a jack of all trades. Be able to offer value added services or higher quality of process adherence to shippers. Transactional low touch freight is always going to be a race to the bottom. Position yourselves as service providers that understand an industry, segment or retailer type. As eCommerce continues to evolve, what shippers will be looking for is only going to increase in complexity as they push for more differentiation.

Innovation Isn’t Always About Creating Something New. Sometimes, It’s Just Thinking Differently

This package was left in the bushes.

At the gate to a secure community.

Is that the type of customer experience you want for your brand?

I didn’t think so.

But it’s happening all the time.

Octavio Herrera posted a great video on Saturday morning (well, morning for us in NA - afternoon in Berlin).

He does a lot of great work with address intelligence. How he looks at data and the creativity and precision he applies to the solution is commendable.

In the video yesterday, he was talking about all of the messy data and extra information that is being found in address submissions.

Customers are putting all kinds of things.

I’m currently working with one organization where I see a lot of user submissions for address details. It’s crazy what is getting submitted and how often people are not following instructions.

The worst part?

They are all doing it to HELP and hopefully make the situation better.

While things like address corrections are annoying, they are speaking to you.

They are speaking to you in the same way that my experience at Staples (I linked the video above) spoke to me today.

Long lines

Notes on boxes

A customer complaint

It’s all an opportunity to ask why.

Why was that line so long?

What would happen if someone needed to use the print center?

Why did that driver write on the customer’s box?

How come that customer just called screaming at my service department?

Most of the time what you will find is what can be fixed.

What you can improve in your process.

You probably have 100 low tech, low barrier improvements that you could make today that would immediately contribute to a better customer experience.

Ever see this quote?

A good or healthy e-commerce repurchase rate falls in the 20-40% range. That’s your average, every day transaction.

How much better would your business be doing if you could increase that +10-20% more?

People who are happy with their experience perceive more value from the brand. When people perceive more value, they come back to buy again.

Ultrafast Doesn’t Cut it. Who Is Leading Grocery Delivery And Is It A Winner Take All?

Ultrafast food delivery does suck as a business model.

Grocery delivery isn’t that far behind.

Walmart. Walmart is winning.

Most of you have seen my take on this before, so I won’t get into any detail. Ultrafast food delivery is terrible economics because you have to over-invest in the execution and promise.

Grocery delivery sounds appealing. Bigger orders, more volume, increased density. What’s not to love?

First, grocery is a low margin business. Always has been. Grocers make their money by selling MASSIVE amounts of volume. This works great when you have stores that people come to shop in, but it doesn’t leave a lot of margin for activities like expensive last mile.

Second, D2C grocery delivery is a longer process. Full grocery shops don’t allow for drop and go. You are bringing multiple bags, beverage containers and other bulky items from the truck to the door.

Customers have to be home to receive a full grocery order. No one wants their frozen or refrigerated items left on the doorstep. Because of this, most delivery providers are using appointments. Like any time window, this inherently makes routing less efficient than it can be since you have to be a specific places at a specific time.

Risk. When delivering perishables and temperature controlled items, there’s a lot of opportunity for things to go wrong. More losses from the store (as a result of customer complaints) means more claims against you as a delivery provider.

Temperature controlled vehicles cost more. Initially and to operate. Food is also sensitive to smells which means you have to have a different level of sanitation for the truck. Having high maintenance costs with a low margin activity is never a good combination.

Why do I think Walmart is winning?

They have a dominant market position both in grocery and in general retail. This gives them the best flexibility and opportunity to drive effective and profitable delivery activity, since they don’t have to pull revenue only from one source.

That’s it for this week. Thanks for being here.