Thank you Erin for doing a great job highlighting the supply chain challenges global beverage producers face due to climate change. Given these challenges in their supply chain in conjunction with sky-rocketing demand for these items, it is amazing producers have been able to keep Coconut water in stock profitability as much as they have! As Erin alluded to, hedging and buffers have been tremendously valuable for Pepsico in ensuring a constant supply despite the potential of increase costs. In an extremely crowded Coconut water field (as pictured), PepsiCo has clearly been willing to spend extra on inventory in order to ensure stock in its effort to win market share. The hedging of co-packing facilities is also an extremely interesting and effective way to diversify weather risks. While the hedging works well in this capacity, I am a bit worried about Erin’s proposal for PepsiCo to engage in large scale hedging of rice futures in Coconut growing regions. PepsiCo’s core competencies come in the form of producing, distributing, and marketing beverages and snacks. I am worried that engaging in hedging outside of their strengths may ultimately distract management and result in significant losses. In terms of leveraging brand equity, I think Erin raises a great opportunity for PepsiCo to leverage sustainability efforts to further market their new healthier products. With a fundamentally different customers base than typical soda consumers, PepsiCo will need to continue to differentiate its marketing approach and an emphasis on sustainability of its new products might be one way to do so.
Thank you for not referencing the potentially questionable airworthiness of new planes in this piece! Eerik’s article brings up many interesting points pertaining to Boeing’s decisions to outsource an increasing amount of the components of production to suppliers. This rise to 70% of outsourced manufacturing for the 787 program from traditional levels in the 35-50% range is a dramatic swing and exposes Boeing greatly to negative events in globalization. As Eerik looked at this problem, his recommendation was to work to bring much of this work back in house and to vertically integrate as much as possible. My worry with this, however, pertains to the increased costs required to drastically swing back to this model of production. Though Boeing recently laid off 8% of its workforce, Boeing would not only need to invest in training new people to handle this increased level of production, but would also have to invest in facility capacity to handle this. Eerik mentioned that Airbus’s rise in quality has led to an increase in price sensitivity job customers and I am worried these potentially drastic cost increases to curb fears pertaining to isolationist policies might lead to Boeing losing market share to Airbus on new orders.
This post raises some very interesting questions about the role and potential actions companies can take to mitigate climate change concerns. With Jackson Family wines facing the same weather threats as other competitors, what is a way different winers can work together in a non-collusive manner in order to protect the longevity of their operations? As Alison mentions, the solutions raised by HJ to the threats of climate change all require tremendous cost. Whether it be installing wind turbines to prevent freezing or opening operations in new regions conducive for growing grapes, all of these options will be a tremendous hit to the bottom line of wine companies and will potentially lead to consolidation. In this regard, however, the wine industry in California at least is very unique. The owning and operating wineries has often attracted a wealthy demographic as many, many wineries operate under huge losses. Will the solutions for wineries run as a hobby differ from wineries run from a profit-maximizing perspective? Will the demographics in the wine industry potentially buffer companies and allow them to handle losses in the short term to invest in more environmentally friendly practices?
As Patrick mentioned, Blue Apron is in a really tough space in an industry without much room for error. Launched with a great marketing plan, Blue Apron has yet to understand what it takes to operate its facilities efficiently. Though an endless stream of new meal options and ingredients is great for marketing, it is a nightmare for the operations themselves. As a company, Blue Apron seems completely lost on what direction to take. Though Patrick mentioned these actions of investing heavily in inventory management and other operating systems as well as labor reductions to get production under control, Blue Apron management has also explored outsourcing its production entirely– a seemingly completely different strategy. And while Patrick mentions that maybe Blue Apron needs to slow down in order to get its arms around its operations themselves, the entry of Amazon into the meal kits arena does not afford them that luxury. As Patrick alludes, however, there is still time for Blue Apron to figure it out, but it will probably require some drastic changes led by some TOM students rather than Marketing class stars. These changes will most likely involve a consolidation of ingredient SKU offerings, in which the company can still offer a wide variety of offering using a more consolidated menu of goods. By consolidating its ingredients used, Blue Apron will be able to leverage economies of scale to unlock operating efficiencies as well as lower procurement prices.
This piece does a great job exploring the conflicting cost pressures the produce industry is facing as companies are often times tasked with choosing between the lesser of two bad outcomes. In the Salinas/Watsonville area over the past two years alone, the effective wage rates for harvesting crews have risen by over 30% due to factors mentioned by MJ including the back-breaking nature of berry-picking jobs and policies/ perceived immigration threats of the current administration. Though MJ details lobbying as a potential solution to the cost pressures of a tariff, my years in the produce industry have often shown its failure in this realm to make any tangible impact on policy makers. Unfortunately, the produce industry as a whole isn’t large enough or profitable enough to invest in lobbying activities like the corn industry. The solution, then, must come from company’s willingness to invest in innovation in both seed variety and harvesting methods. MJ mentions the potential for Driscoll’s to focus on seed variety, but luckily, this is something Driscoll’s currently invest HEAVILY in. A typical Driscoll’s seed variety takes up to seven years for development and is only sold in retail channels for roughly three years before it is replaced by a superior seed variety. If there are any possible advancements in seed technology, Driscoll’s most likely already has it under development. In addition to Driscoll’s work in improving seed variety and harvesting, location of its sourcing will be something to pay close attention to in the future. As costs continue to rise in California, will the current supply chain model be disrupted in efforts to find lower cost solutions internationally?
The Amazon onslaught on brick and mortar has created many problems for traditional retailers such as Wal-Mart. While this threat is ever present for retailers, Kyle’s piece does a great job highlighting some of the key aspects of the Wal-Mart model that might potentially protect it (unlike most retailers) from the growth of Amazon-led eCommerce. In particular, Kyle mentions that Wal-Mart’s store density is much higher in rural and poorer regions in the United States. This point raises a very interesting question– is Amazon a threat to the core base of Wal-Mart customers or do the two behemoths have different primary customer bases? With Wal-Mart’s emphasis on low costs of goods, it is possible that it has ciphered off a customer segment that would be less willing to spend for Amazon Prime membership and the higher price points found on Amazon.
With customers prizing speed of access to goods now more than every, Wal-Mart’s existing footprint of being within 10 miles of 90% of Americans potentially gives them an advantage as Amazon seeks to add warehouse space and brick and mortar stores of its own. Another interesting point that I would love for Kyle to explore further would be the role of grocery sales as a competitive advantage for Wal-Mart. In 2016, food sales represented over half of Wal-Mart’s total sales and only 12% of U.S. consumers purchased food online during the year. With customers being slower to adopt food purchases online relative to soft goods, this could potentially be another area in which Amazon could leverage its competitive advantage against Amazon moving forward.
Though facing this big threat, Kyle’s proposal to monitor the pace at which its customers leverage online is it a bit worrisome to me. While I understand the rationale of attempting to leverage omnichannel customers to increase basket size, Wal-Mart risks potentially losing customers to other eCommerce sites if it intentionally slows its development in this area.