Building on the above, another issueI see with pushing volume from DC straight to consumer is that you end up with this huge asset base of physical stores which you are tied to for a few years (at a minimum). So while in one way you are more efficiently using your physical asset base (DC’s), you are abandoning (and weighed down by) another huge portion (retail stores).
Ultimately it comes down to who Kroger wants to be. Do they want to be the fulfillment center of the future for all the various online apps (potentially including their own)? Or do they want to maintain and strengthen their position as a center-point in communities, and use their physical presence to drive increased online sales through in-person experiences? Importantly however, it feels like Amazon may be moving toward this digital-physical hybrid option, so this ‘experiential shopping’ model may have a very tough competitor- but it feels like Kroger, as the US’s largest grocery chain, has the best chance.
Really interesting article! Particularly enjoy the discussion at the end about how this may shift the structure of the airline industry (e.g. vertical integration) and the density of profits in different parts of the value chain.
The biggest question I had after reading this was, how are they possibly affording this? Doing a quick search, I found some interesting information about similar digitalization efforts at EasyJet which exemplify power this movement can have, especially in a high-capital cost industry such as aviation where, as you point out, over-maintenance is common (and thus costly).
In this case, EasyJet Head of Engineering Ian Davies discussed a new app to improve the replacement process for a plane’s fan blade (the typical EasyJet aircraft has 36 such blades). This software cost ~$20,000 to develop, but each individual fan blade costs ~$40,000. By improving replacement efficiency on this one component EasyJet estimated $2M annual savings. This example really hit home for me the power that data can have in a capital intensive, safety critical industry such aviation, and now my biggest question is why isn’t everyone doing this? (Operational complexity and lack of required skill-set is my current hypothesis but would be interested in alternative ideas!)
To your question above regarding the harm caused by ‘transportation/refrigeration of ingredients, packaging of meals, and distribution of kits’, I would argue that the Blue Apron model already performs better on these dimensions than our typical supply chain. The crux of the improvement is in that Blue Apron is not buying from grocery stores like you and me- they are going direct to farmers and cutting out a massive ecosystem of wholesalers, distributors and retailers that sit in between- each of which are associated with their own transportation, refrigeration and packaging systems. These are costs that we the consumer do not see, so when our Blue Apron boxes come, seemingly with each individual grain of salt in it’s own personal plastic bag, it feels like a massive waste to us, but compared to the entire ecosystem of storage, preservation and delivery sitting behind our traditional grocery stores, this impact is actually quite minimal.
See below for more discussion of this concept:
I was so excited to hop on the bandwagon here- ‘Down with styrofoam!’ and similar such educated, eco-friendly perspectives. Unfortunately, then I did a quick Google search, and like most issues in climate change, I discovered that the problem is actually much more complex.
I’ve finally wrapped my head around the idea that recycling is not always more environmentally friendly (significant energy needed to turn our recyclable products back into something useful), and as it turns out, a similar rationale holds for the styrofoam vs paper cup debate. While styrofoam, as has become a handy green pop-culture fact, takes more than a million years to degrade in a landfill, it actually performs better than paper on many dimensions such as:
– Transportation fuel use (as it is lighter weight)
– Energy used to manufacture
– Water used to produced
As much as the coffee snob in me loves to hate on Dunkin (and it’s styrofoam cups), it seems like delaying/avoiding a switch paper might not be the worst decision here. That being said, Dunkin could definitely be doing more to actually address the problem, such as investing in development of styrofoam recycling technology.
As you point out, it is clear to us now that the American manufacturing worker does not appreciate the benefits of free trade and globalization on his/her life. In fact, back in 2014 Pew study found that ~50% of Americans think that trade destroys jobs and lowers wages, compared to ~20% that hold that belief in other countries. Even more extreme- ~80% of Americans indicated protection of American jobs was a foreign policy priority, a level comparable to that prioritizing protection from terrorist attacks.
However, I’m not convinced that your proposal of companies educating their workforces on the value of globalization will work. Unfortunately this is fundamentally opposed to the labor ecosystem here in the United States, where companies and employees have only a temporal relationship, and neither owe the other any long-term commitment. The fundamental problem here in the US is not a lack of education on the benefits of globalization, but rather than those benefits are actually lacking.
As described by the New York Times leading up to the 2016 election, ” An outsize share of the winnings have been harvested by people with advanced degrees, stock options and the need for accountants. Ordinary laborers have borne the costs and suffered from joblessness and deepening economic anxiety.”
The Brookings Institute marks a similar trend, “Displaced American workers face a much more difficult and prolonged period of job transition than we had previously thought. Workers encounter long spells of unemployment, wage losses, and a lack of opportunities in depressed communities” and solutions like the Trade Adjustment Assistance program have been woefully inadequate in addressing this disparity.
Until Ford, or other US manufacturers, are actually committed to their workers, either through a long-term differentiated strategy, or via government intervention in employment practices, it will be difficult for a coalition such as you’ve described above to play out, as it would be yet another hollow promise to a community of highly disillusioned citizens.
Contrary to your statement above, I actually don’t find it surprising that BMW has doubled down on MINI production in the UK post-Brexit. What this post fails to take into account is the effect of foreign exchange rates on these dynamics and manufacturers making short term decisions accordingly (while preserving/strengthening long-term alternatives such as shifting production to other EU nations as mentioned above). As indicated by the Wall Street Journal in November 2016, one effect of Brexit has been devaluation of the pound, thus making UK-based production increasingly competitive (i.e. increasing margins). With this in mind, it seems quite logical that BMW would have increased MINI production in the UK to leverage this advantage, and will continue to do so in the long-run as well to the extent that unintended consequences of Brexit on foreign exchange rates counter the effect of isolationist tariffs.