October 9, 2013

The slowness of innovation

From the NYT:
Peapod, an online grocer in the Northeast and Midwest that provides home delivery, recently developed a feature on its mobile app that allows customers to restock household staples by scanning bar codes with their smartphones at home. 
“You are finishing the box of Cheerios, pouring your last bowl,” explained Mike Brennan, Peapod’s chief operating officer, “and before throwing the box away, you take out your phone and scan the bar code.” The order goes straight to the consumer’s virtual shopping basket.

Back around 1995, I wrote a consulting report for Peapod, advising them that there was this new thing out there called the Internet and that it was going to be big, so they need to have a "website" rather than their then-current bank of dial-up modems and non-HTML software interface.

I followed-up with a speculative report for private investors on the next level beyond Peapod, which would appear be what Peapod is groping for in 2013: to bring the logistics revolution to your pantry. American retailers have become vastly more efficient at minimizing their capital and warehouse space tied up in inventory. They scan bar codes to know when they are running out of a product so they can order more just-in-time.

But one way they lower nominal prices is by offloading much of the cost of inventory management onto their shoppers. To shop at Costco, it helps to have a strong back to lift cases, an SUV to carry your purchases home, a large amount of storage space, and maybe a second refrigerator for storing goods. For example, I'm currently drinking a lukewarm Kirkland diet cola from Costco that I just got from my storage dump on my back stoop, because I have no more room in my kitchen, much less my refrigerator.

Not surprisingly, spoilage tends to be high as well because container sizes are so large.

In the distant future, families will use inventory management systems that track the depletion of groceries off their shelves and deliver optimally sized new shipments as needed. But, as I pointed out in 1995, there were huge hurdles to this process. Perhaps the most daunting I could see was how to deliver fresh (and thus spoilable) groceries to household where nobody is home most of the day.

50 comments:

Anonymous said...

For example, I'm currently drinking a lukewarm Kirkland diet cola from Costco that I just got from my storage dump on my back stoop, because I have no more room in my kitchen, much less my refrigerator.

Half the stuff in my house must be from Kirkland Signature. I think even the underwear I'm wearing is Kirkland.

countenance said...

Otherwise, I'll have to presume that "innovation" is the buzzword that the CSIT-STEM end of the EL CHEAPO labor lobby hauls out as the reason why we need more H-1B visas.

Steve Sailer said...

Five of the seven items of clothing I have on right now are Kirkland, Costco's store brand.

Shouting Thomas said...

I hate Sam's Club blue jeans.

But I wear them.

My girlfriend buys them for me. Half the price of a retail store.

Although the tags insist that Sam's sells brand name jeans (Levi's, I think), the denim is obviously inferior to the denim in Levi's sold in retail stores.

Anonymous said...

Tangential to Peapod, traditional bricks & mortar grocers rely on impulse sales for a good bit of their dollar volume and profits. Home delivery therefore must become very efficient and very low-cost in order for the grocer to turn a profit in what is already one of the lowest profit-margin businesses out there.

At the other end of the spectrum, stores like Wegmans strive to deliver added value via in-store conveniences and a pleasant atmosphere.

cipher

Anonymous said...

At the other end of the spectrum, stores like Wegmans strive to deliver added value via in-store conveniences and a pleasant atmosphere.

Their food court, which they call a "food bar", is seriously overpriced for the quality of the food though.

Anonymous said...

"But one way they lower nominal prices is by offloading much of the cost of inventory management onto their shoppers."

Project Manager - 1965

Sit down at your desk in your office and review letters and memos from your office mail inbox. Take the first phone call of the day screened and transferred to you by your secretary. Lead a team meeting, then review, edit and approve the draft minutes from the stenographer. Review the phone messages screened by the secretary. Return these phone calls, leaving messages with secretaries. Approve the final draft of team meeting minutes from the typist. Send memo and attached meeting minutes to team members through office mail.

Project Manager - 2013

Sit down at your desk in your cubicle and review your avalanche of email. Let the first phone call of the day roll over to voicemail. Lead a team meeting, then review, edit and approve the draft minutes from one of your team members. Review the phone messages that have accumulated in voicemail. Return these phone calls, leaving messages on voicemail. Edit the final draft of team meeting minutes using Microsoft Word. Send email and attached meeting minutes to team members.

The productivity gains from 1965 to 2013 are from replacing the mailroom with email and you, secretaries with voicemail and you, stenographers and shorthand with your unlucky team member and Microsoft Word, typists with Microsoft Word and you. A substantial amount of direct labor has been replaced with technology (email, voicemail, Microsoft Word) and indirect labor (project manager, project team member). However, does this improve innovation?

Anononymous said...

As the size of the stores increase to warehouses, they become more centralized and fewer in number, and therefore the average person has to drive further to get to to it than he did before.

So you need to calculate the cost of millions of people driving an extra few minutes/miles to shop.

So we've eliminated the need for one truck driver to make a 3 minute trip to a local store distribution node, and traded it for 300 people in cars driving an extra 3 minutes to the more central warehouse.

BTW, truck is getting 5 mpg, 300 cars getting 0.08 mpg.

For reducto ad absurdum, there could be one giant grocery store in Kansas we could all drive to. Distribution costs go to zero, genius entrepreneurs make a fortune.

Anononymous said...

Back around 1995, I wrote a consulting report for Peapod, advising them that there was this new thing out there called the Internet and that it was going to be big

1994: "Today": "What is the Internet, Anyway?"

Jeff W. said...

Steve writes:

"Perhaps the most daunting [hurdle] I could see was how to deliver fresh (and thus spoilable) groceries to household where nobody is home most of the day."

There has to be lockable door on the outside of the house with access to a refrigerator. It must also allow access to a space for temporary storage of nonperishable items. The guy from Peapod has a key. The small size of the door doesn't let the guy from Peapod get into the house. Maybe some big items have to go into a lockable bin in the back yard.

This requires refrigerator redesign to add a back door and houses being retrofitted with access doors. It's not difficult to imagine or plan, but very difficult to put into widespread practice.

Steve Sailer said...

Right. Refrigerators with access from the inside and the outside would be great, just as my father's house in Oak Park had a coal bin with outside and inside doors. But, who moves first? Perhaps a giant housing complex in the middle of nowhere?

Anonymous said...

On the other hand, big box retailers for non-perishable goods like electronics have declined significantly since a lot of it moved online. Circuit City went out of business, and Best Buy is still around but has changed significantly. I went into Best Buy recently, and it's changed a lot. It's more like a showroom now. And they had a large section devoted to washers and dryers, dishwashers, etc., stuff they never used to sell.

Anonymous said...

What about a new subdivision with a pneumatic tube grid for direct delivery of goods? That would be even cooler.

Ichabod Crane said...

Old fashion ice boxes -- delover food alng with a lomp of dry ice to old timey-looking ice boxes. Charge a smalll premium for cheep styrofoam boxes, or even bubble wrap with each delvery.

Anonymous said...

I think the home inventory management system is a lot less likely. By aggregating the demands of many customers, retail inventory management can be much more consistent and take advantage of economies of scale in shipping. A home management system is going to be plagued by the little kids who decide one week to eat up all the Cheerios the same day you buy them. Then you need a new box of Cheerios before you are ready to order the bread, Chex, pasta, etc. Paying for delivery of a single box of Cheerios isn't so appealing.

Anonymous said...

Paying for delivery of a single box of Cheerios isn't so appealing.

It would be appealing if you had something like a pneumatic tube grid for home delivery in which the non-fixed cost of deliveries were essentially nonexistent.

Anonymous said...

Grocery shopping (unlike consumer electronics, etc.) still has some allure because the products are relatively cheap, tasty, and quickly enjoyed, and most people still live fairly close to a store. Costco and Sam's Club are working overtime to remove some of that allure, but it's still there. To make home delivery more than a niche market you have to save people a lot of money and/or time.

Removing the need for emergency trips, where people go in only to replenish a few dwindling but essential items (milk, bread, eggs, shampoo, etc.) would be nice, but that doesn't raise much revenue. Most people pass several grocery stores on their way home from work.

That means a market segment that well be evolutionized rather than revolutionized.

Anonymous said...

What about unmanned drone delivery? They could essentially run themselves, constantly delivering things, creating a just-in-time inventory system for households.

Anonymous said...

Removing the need for emergency trips, where people go in only to replenish a few dwindling but essential items (milk, bread, eggs, shampoo, etc.) would be nice, but that doesn't raise much revenue. Most people pass several grocery stores on their way home from work.

Remember the milkman? Home milk delivery used to be common.

Dave Pinsen said...

There was no need for fancy infrastructure when milk came via home delivery and there probably isn't now. Just drop the stuff off early in the morning before people go to work. There is (or at least used to be) a diet food service biz in New York that would drop off 3 meals and 2 snacks to your front door every day by 6am or so.

Anonymous said...

Steve - There is this in the UK:
Shopbox.

Ive not seen one of these anywhere yet but some people must be using them.

Home delivery is massive over here, three companies each have 100% coverage of the UK - Tesco, ASDA (Walmart) and Sainsburys another one has partial coverage - Ocado.

Anonymous said...

"Remember the milkman? Home milk delivery used to be common."

Yes, I do. We had three dairies with delivery routes. But prior to that we had grocery delivery, since most families had only one car and Dad took that to work.

I also remember the knife sharpening guy driving around with a workshop in the back of his truck, the Charles' Chips potato chip delivery guy, the Mister Softee ice cream guy and the family doctor providing home house calls for sick people in bed.

Anonymous said...

I did some related work on this from 94 to 97. Problem back the: delivery cost was about $30. There has to be enough room in the goods delivered to cover that fee. We figured that a delivery in 1995 dollars had to be about $200.

Walmart is testing home delivery on the west coast.

Prediction: Seniors are going to be the early adopters who pay the high costs and drive the volume to make this possible.

dearieme said...

"how to deliver fresh (and thus spoilable) groceries to household where nobody is home most of the day": eh? In Britain our supermarkets will deliver in the evening, though their charge is higher than their daytime charge.

Apparently the best delivery slot to book is the last one on a Friday evening, because that's the one they are likeliest to be late for, so you get the biggest compensation payment.

dearieme said...

I should add: a young friend of ours lives in a flat in London. The local "corner shop" will accept deliveries for her. I don't know what she pays for the service: maybe she is just expected to buy decent amounts of stuff from them.

poolside said...

I remember signing up for Peapod when it first came to town years ago.

My one and only experience with it was that it took forever to navigate through the various choices and make selections. We actually never finished our order, and never used it again.

Of course, that was in the early dial-up days.

I had no idea Peapod was still around ... figured it had gone bust like so many other early Internet companies.

Anonymous said...

I seem to remember that one of the delivery services that went broke in the 1st internet wave would leave stuff in some kind of insulated cooler ala shopbox. This is not rocket science - back in the day, milkmen would leave the milk in an insulated box too.

As Steve says, Costco makes you part of their unpaid workforce - picking the goods from the warehouse floor, loading them into the vehicle, driving them home, etc. The problem w/ the home delivery business is that consumers don't value their own time or vehicle costs properly and so they are not willing to pay a premium to have someone else do this for them. We once had all sorts of home delivery services - milk, bread, etc. and they all disappeared for this reason - they could not compete on price because their costs were higher.



Cail Corishev said...

My butcher just brings the meat in and puts it in the freezer. But I live where many people don't lock their doors.

slumber_j said...

Some new doorman apartment buildings (and some retrofitted old ones) in NYC now have walk-in refrigerators off the lobby. FreshDirect or whoever it is delivers your food, the guy on the door puts it in the walk-in, and you pick it up when you get home.

Dave Pinsen said...

Costco has its own delivery service. I've never used it (our local store is only about a mile away), so I don't know if it covers perishables.

Anonymous said...

My butcher just brings the meat in and puts it in the freezer. But I live where many people don't lock their doors.

That sounds like something you'd read on the poster to a horror movie.

Geoff Matthews said...

So, there's this company called Winder Farms that delivers fresh produce and dairy.

http://www.winderfarms.com/

They have a cooler that you leave on your doorstep to exchange for the full one. The food is marked up significantly, but they're doing well enough to expand into California.

But, I'd rather look at the produce I'm going to buy before I buy it.

Michael Ryan said...

fresh direct makes evening deliveries for upscale households in NYC you can get anything from gourmet prepared thanksgiving dinners to fruits and vegetables

E. Rekshun said...

@Anon: "I think even the underwear I'm wearing is Kirkland."

Chicks dig me because I rarely wear underwear.

Ray VonMartin said...

SS: "Back around 1995, I wrote a consulting report for Peapod, advising them that there was this new thing out there called the Internet and that it was going to be big..."

I first accessed the Internet in 1998 via my 56K dial-up modem and my AOL account.

E. Rekshun said...

SS: "...how to deliver fresh (and thus spoilable) groceries to household where nobody is home most of the day."

In the early '70s, I delivered the morning Boston Globe to an 85-year old lady on my street. I was instructed to leave the paper on top of the "milk box" on her front porch. At that time she and a few neighbors still had fresh milk delivered three times per week by the milk man. He left a half gallon glass container of milk in the small lightly insulated aluminum "milk box" on the customers' front porch. This was not rural America, but a suburb of Boston.

E. Rekshun said...

Anon: "Grocery shopping...still has some allure."

I hate grocery shopping; there's no allure. Although, I did meet an attractive young woman in line at the register not long ago. She had five 20-lb bags of cat food, and nothing else, in her cart. I should have recognized that as the bad sign that it was.

Ray VonMartin said...

Grocery delivery. Is this a job Americans just won't do? Better get Marco Rubio, Chuck Schumer, and the US Senate to figure out a way to remedy this.

Ray VonMartin said...

The last Capta test to prove I'm not a robot had the word: jewman

E. Rekshun said...

"Remember the milkman? Home milk delivery used to be common."

"..the knife sharpening guy...potato chip delivery guy, ...ice cream guy..."

And the ragman and cloth diaper delivery & pick-up.

Captain Tripps said...

Steve said:

“American retailers have become vastly more efficient at minimizing their capital and warehouse space tied up in inventory. They scan bar codes to know when they are running out of a product so they can order more just-in-time.”

Yes, JIT inventory management has enabled corporations to squeeze more efficiency out of capital stock and inventory management, and produce more shareholder value, but it creates a systemic vulnerability. JIT inventories are much more sensitive to disruptive shocks in the supply chain. You saw that in the last decade as stores struggled to keep high demand items stocked before and after large scale disasters such as Hurricane Katrina and Superstorm Sandy, et al. As with any new innovation, there are trade-offs.

Anonymous said...

Wow, none of you geniuses are familiar with CSAs or Amazon Fresh, which has expanded into LA.

Amazon Fresh solved all these problems, sometimes in quite clever ways, but the margins did them in, so they now are being refashioned as a high-end delivery service to earn back all the infrastructure money.

Anonymous said...

For those who live in suburbia, do you trust that grocery items left unsecured on a porch wouldn't be stolen in 2013 America? What about the hungry Mexicans mowing your neighbors' lawns?

Anonymous said...

"I'm currently drinking a lukewarm Kirkland diet cola from Costco"

Dude, we care about you. No more donations if you're going to spend money on that poison.

(To which Sailer might pointedly reply: 'How would I possibly survive such a MICRO-aggression against my cash flows?')

But seriously, I have had the same experience with laying out technology strategies years ahead of their time. Same thing with investing - it's one of the reasons technical traders treat future-gazers with scorn. Too soon is as broke as too late.

Gilbert P.

Gringo said...

Within a mile of where I live there are four grocery stores, two of which I patronize. Within 2.5-3 miles there are four more. I have no problem with driving to them.

Anonymous said...

For those who live in suburbia, do you trust that grocery items left unsecured on a porch wouldn't be stolen in 2013 America? What about the hungry Mexicans mowing your neighbors' lawns?

Yes, we do. In my suburbia, everyone's moving his own lawn.

Dave Pinsen said...

Shouldn't innovation in this space aim a little higher? Why not a machine that turns a few raw ingredients into prepared entrees for you, sort of like a 3D printer for food? Eggs can be powdered and dried. Flour is already a powder. Meat can be sliced and dried. Flavors, spices, and catalysts can be titrated using similar tech to what's in the new Pinanfarina coke machines. Hot water could be plumbed into the machine, it could have a built-in convection oven, etc.

Anonymous said...

Why not a machine that turns a few raw ingredients into prepared entrees for you

You've been watching the Jetsons too much. People want the opposite of powdered and dried eggs - they want fresh eggs from their backyard hens. Williams-Sonoma sells designer chicken coops.

pat said...

Two years ago I fell off a cliff. Well not exactly fell. My dog pulled me over the edge. It wasn't a big cliff and I fell onto soft sand but like Mercutio's wound - " not so deep as a well, nor so wide as a church-door; but 'tis enough, 'twill serve".

My back was messed up pretty badly. I sat in my den and popped morphine pills for a year. I never left the house. I discovered out of necessity that Safeway delivered groceries.

I'm a lot better now but I still use their delivery service. I'm a little surprised that everyone else doesn't. It's nine o'clock now my groceries will be placed on my kitchen counter around eleven. There is a delivery charge I guess but I don't actually know what it is.

Albertosaurus

Anonymous said...

You're home to receive your groceries, pat. That isn't possible for most working people to arrange. You are also apparently insensitive to the delivery charge, but the poorer sort of working people might not be. Also, some people like to choose their own produce and meat to avoid the duds. That's not possible with a delivery service.