October 25th, 2021: J.B. Hunt’s shipping costs, instant delivery startups, Instacart acquires Caper, and shoppers may spend more this holiday season.
It’s October 25, 2021 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Transportation company JB Hunt Looks For Shipping Costs to Keep Rising Through 2022
Are Instant Delivery Startups the New Investment Bubble?
Instacart’s New Acquisition Caper Means It’s Still Searching for Its Next Act
New Data Suggests Shoppers May Spend More and Sooner This Holiday Season
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
Transportation Company JB Hunt Looks for Shipping Costs to Keep Rising Through 2022
Transportation and logistics provider JB Hunt reported earnings last week, and in doing so spooked investors with its forecast. Here are a few things they reported:
Port delays on the US coasts will intensify in November and December.
There is an all-time high demand for drivers in all segments of the market.
Transportation pricing will continue to rise because costs keep going up, and finally:
Higher wages and equipment costs are not likely to recede, and these increases are here to stay.
Here’s what it means:
First, no one on the call talked about port congestion easing up any sooner than middle of next year.
Second, when asked about the long-term implications of these supply chain surges, no one was willing to make a prediction other than that these providers don’t want to be inflationary, which I couldn’t help but notice was a little bit different from what they said before when they said that these costs are not going away.
Finally, let’s think about what is happening in the labor market. Over the next two years I think the biggest risk is to small and mid-size retailers and brands that manage their own fulfillment business. When there is a surplus of labor, it’s easier for anyone to hire for a particular skill.
In an environment of extreme shortages, the organizations that are best at hiring tend to compound their advantages because people want to work with the best people. Not only is this an advantage for the best 3PLs and transportation providers going forward, it is also a net negative for retailers and brands managing their own supply chains, most of which are convinced that in-house is the best way to optimize their cost per unit. Which in many cases is true.
The challenge with this thinking is simple. What happens then when flexibility and risk become higher priorities than unit costs? These same brands and retailers face existential risk to their receiving and distribution operations.
[References:]
Our Second Story
Are Instant Delivery Startups the New Investment Bubble?
Berber Jin, a reporter for The Information, had a few findings in his recent article.
Some of these companies are spending more than $10 for every $1 they make.
Jokr for its part lost $13 million on $1 million in revenue. Just the cost of goods and delivery alone for that $1 million in revenue were $2.3 million.
These companies also all need scale to lower their per-unit costs, and finally
More established delivery models like DoorDash are developing dark or “ghost” stores called DashMart convenience stores, and are also considering expanding into grocery.
While companies like Jokr believe they can be more profitable than Instacart or DoorDash, the jury is still out. The aggregation of stores and brands Instacart provides gives them more leverage with advertisers looking to introduce their brands to consumers — something that they can’t do with some of these instant delivery providers that have more limited selections.
In the battle between growing fast and growing profitably, new investors seem to be rewarding speed above all. Clearly it’s not sustainable and unless these players are able to attract the best operators, they will not be able to trade scale for profitability later. Scale is likely one of those necessary but not sufficient conditions to become profitable.
My warning here is pretty simple — just because you’re bigger doesn’t mean you understand how to optimize the system to squeeze out costs and run at a profit, or that it won’t take you rebuilding the entire infrastructure in a different way to do so. First doesn’t mean best, even in the eyes of consumers. If some of the slightly slower-growing providers are able to survive for the longer term, I tend to bet on them over those that may be more like flashes in the pan.
[References:]
Our Third Story
Instacart’s New Acquisition Caper Means It’s Still Searching for Its Next Act
TechCrunch reported last week that Instacart acquired a smart retailer technology and AI solution called Caper for $350 million. Caper offers two different solutions. One is a smart shopping cart technology designed for self-checkout. The other is a smart retail counter technology designed to allow fast checkout for certain types of items that you put into a kind of self-contained smart checkout cube.
The price they paid for this technology indicates this is a major focus going forward given that it’s $100 million more than their last funding round.
So what’s this about?
First, the fact that Caper allows you to bring your own payment processor instead of requiring you to use theirs tells you everything you need to know about the deal. It’s not a payments play. It’s actually a data play for Instacart.
Second, despite Caper saying that it’s been deployed around the world, it was very difficult to find any actual non-PR produced videos. This doesn’t bode well for this technology being tested in the wild. The one cart technology video I did see was horrific. Essentially, they put an iPad and a payment terminal and a scale on a shopping cart with a camera scanner. Ultimately this means you can’t put kids in these carts and turns all shoppers into unpaid and untrained retail employees.
This is what happens when you don’t start with the customer and work backward in your innovation. Critical questions need to be asked when embarking on a new innovation project before dropping hundreds of millions of dollars on a flawed premise.
Instacart has improperly identified only one customer - the retailer looking to save on labor costs. The other customer is the shopper who will have to deal with optimistic Silicon Valley visions of how they should shop, versus how it works in the real world.
I came away feeling that this Instacart direction is a long way from making money and getting any kind of widespread adoption. If this is how Instacart spends its money, is it any wonder they have not yet gone public as was widely predicted last year?
[References:]
And Our Last Story
New Data Suggests Shoppers May Spend More This Holiday Season
October is the new November, according to early holiday data and consumer trends, which point to the fact that consumers plan to spend some of their pandemic savings this holiday.
Survey data from JLL says that consumers plan to spend 25% more than last year, which is ahead of similar data from Deloitte and NPD Group which predicted 3% - 7% growth from last year.
JLL also predicts that 25% more consumers will be shopping before Thanksgiving this year than last year.
In good news for retailers, 60% of consumers expect to shop in stores this year.
Also compared to last year, consumers are more focused on shopping than safety. Not that consumers are not concerned about safety at all, but consumers have changed their decision calculus.
Not to be outdone, Adobe forecasts a 10% rise in online shopping this year compared to last year.
Even more than online, however, Adobe indicates that Curbside could be the big winner by far. I for one agree. For the past two years, it’s been one of the fastest growing formats in all of commerce, not only for its tremendous convenience, but also for the inventory certainty of picking it up on the way home rather than hoping a carrier will get it to you.
What does this mean for merchants? Consumers learned a lesson last year. Many experienced the disappointment of not being able to get gifts for loved ones and more are determined to not let that happen again. Despite supply chain challenges, you can still be optimistic about the direction that eCommerce is headed, which is good for all Watsonians listening in here.
[References:]
https://www.us.jll.com/en/newsroom/holiday-shoppers-plan-to-spend-25-percent-more--compared-to-2020
https://www.retaildive.com/news/consumers-plan-to-spend-about-25-more-this-holiday-season-jll/608052
https://www.eseller365.com/adobe-record-holiday-season-inventory-shortages/
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Shipping carrier Lasership acquired Ontrac in a regional carrier tie-up. The thing I like about these sorts of arrangements is that I fundamentally believe diversification is coming to the supply chain market, where these integrated all-in-one carriers will not be able to offer the best service unless it is at a premium. Smaller, regional carriers will be able to offer better service at lower costs than the majors.
Second
Shares of social site Pinterest soared this week and its stock stopped trading a few times on rumors of acquisition interest from Paypal. This could be an interesting tie-up and fit in well in particular with Honey, which is another recent Paypal acquisition. Pinterest could give Paypal a tremendous amount of data on consumer habits and trends.
https://www.cnbc.com/2021/10/20/pinterest-shares-soar-following-report-paypal-may-buy-it.html
Third
Instant delivery provider Ohi recently raised a $19 million Series A from Palm Drive Capital.
The company has built a network of micro-warehouses in the United States in 25 markets which facilitate hyper-local delivery. In addition to the delivery component, the company also combines customer experience tools like unboxing and tracking.
Fourth
Women’s apparel brand SPANX just signed a definitive agreement to be acquired by Blackstone Brands at a value of $1.2 billion, with founder Sara Blakely maintaining a significant equity stake.
In a business started with virtually no money and Sara without business experience, this is an incredible story and testament to her and her customer focus. Congratulations, Sara!
https://www.businesswire.com/news/home/20211020005757/en/
AND FINALLY …
Cannabis Marketplace leader Dutchie raised $350 million at almost a $4 billion valuation recently. The company is an aggregator of dispensaries in the buyer’s local area that combines a marketplace with delivery. The company also offers software, which allows dispensaries to run their operations. You could say that I’m high on this company’s continued growth in an emerging market.
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That’s all for this week! Till next time, Watsonians.....
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Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our show is produced by Citizen Racecar. Alex Brower is the producer and also wrote our theme music. The Executive Producer is David Hoffman.
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