September 27th, 2021: Chewy’s new marketplace for veterinarians, Kroger doubles down on Instacart, Shopify expands its cross-border services, and FedEx’s first quarter 2022

Written By Rick Watson

It’s September 27th, 2021 and this is the Watson Weekly - your essential eCommerce Digest!

Today on our show:

  • Kroger doubles down on Instacart with a new partnership,

  • Shopify’s Markets offering expands its cross-border services, and

  • FedEx First Quarter 2022 earnings point to structural issues for the firm.

- and finally, The Investor Minute contains 6 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….

Online pet retailer Chewy launches a new marketplace for veterinarians

Adding a new dimension to its business, Chewy recently launched an eCommerce platform for veterinarians to improve service for some of its best customers.

What are the features offered to vets?

- The ability to create pre-approved subscriptions for its members, reducing the online approval process hassle.

- Ability to earn money when consumers shop at the Chewy portal for the vet, and

- The ability for the vet’s consumers to auto-ship products on a schedule.

This is quite an impressive launch from Chewy – in essence a multi-sided marketplace with both B2B and B2C components – all of which align to both Chewy’s and the vets’ incentives, while helping the consumer too.

I’ve been in and around marketplace businesses most of my career.  Building a multi-sided marketplace is significantly more challenging because not only do each of the players in the marketplace have different needs, those different players also interact with each other.

Perhaps there is something to learn from Chewy here.  Other retailers considering launching or growing marketplaces should ask themselves two critical questions:

#1 - Who are my most valuable customers?

#2 - What additional services could I offer these customers in order to make their lives easier?

The issue I most often find is that instead of asking these simple questions, most retailers instead take a Field of Dreams mentality to their innovation. 

The problem?  What if you Build It and They Do Not Come?


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Our Second Story

Kroger doubles down on Instacart with a new partnership

With Kroger’s recent Instacart partnership and its CEO’s presentation at industry event GroceryShop, Kroger shed new light on its strategy.  What we knew about before was its multi-hundred million dollar investment in automated facilities powered by Ocado, which will slowly roll out across the country.  

The CEO mentioned that this could be a key tool for the company to enter new markets without having to build stores, although this seems difficult in places like Florida, where grocery competitor Publix has been dominant there for over a generation.

A newer development is a closer tie-up with Instacart on a new 30-minute delivery site.  In attempting to blunt the entry of upcoming Quick-Commerce entrants like goPuff and Jokr, Kroger is placing more bets on immediate delivery.  

What I find interesting about this deal is that although the service is *branded* Kroger, in reality the program is all Instacart.

This means that Instacart may actually be the big winner here because it is still getting customer information as well as maintaining the ability to display its valuable advertising inventory to these customers.

With the string of bad news out of Instacart recently, the company certainly needed this.  To keep expanding, Instacart needs large, long-term retail partners to make its model work.

In such an environment, it’s possible that if Instacart is able to play on the fears of Albertson’s and Kroger that  Walmart and Amazon are taking over, it may still be able to grow enough to stay ahead of new grocery entrants Uber Eats and Doordash.

 All eyes remain on Kroger, however.  The company now has two nationwide models to scale.  One with Ocado, which is limited in that it is high cost and low reach.  The other with Instacart is simple and easy to scale, but Kroger doesn’t own the customer.  I still can’t shake the feeling that neither is the best way forward for Kroger and it will take a few painful years before the company realizes this.


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Our Third Story

Shopify expands its cross-border services with its new Markets offering

Last week, Shopify announced an early access program called Markets, which provides better cross-border consumer experiences for merchants on its platform.  The offering is said to include currency conversion, language translation, multi-country domain support, expanded payment methods, and accurate duties collection.

Shopify continues to march to the beat of its own drum in terms of features and functions.  Industry reports indicate this service is the combination of both internal functionality built by the firm, as well as partnerships with cross-border software companies Avalara and potentially Flow, although details were not confirmed.

The new Markets offering does come with additional fees for payments and duty calculation, although smaller brands will probably not mind these because they’re built into the platform.  

Industry watchers are probably also wondering where this leaves global-E, which Shopify invested in not too long ago.  I tweeted at Shopify and received a response from an International Product Manager there who indicated that global-E would be Shopify’s recommendation for higher-end brands and that this entry-level offering was not powered by that partnership.

Where Shopify goes from here is an interesting question.  Cross-border is one of the trickiest things to execute in eCommerce, not just from the front-end experience, but also ensuring that overseas consumers get their parcels on time.  Supply chain details are noticeably absent from the release.  It remains to be seen what Shopify has in store here, but expect international delivery to be the next big cross-border capability.  

In fact, on that note, reports I’ve heard indicate that Shopify has secured a large new facility in the Southeastern United States.  The location itself doesn’t make sense if it’s to build out their US network,   but as an international cross-dock facility, it could make all the sense in the world.


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And Our Last Story

FedEx First Quarter 2022 earnings point to structural issues for the firm

This past week, FedEx reported earnings for its first quarter. I can’t remember a tougher earnings call that I’ve listened to in recent memory.  Here are a few notes:

- The company predicts 10% yearly growth in the entire US domestic parcel market between now and 2026.

- The company missed its revenue targets, and its margins declined year over year.  Worse, FedEx lowered guidance for the rest of the year.

- The company had about $450 Million in extra expenses  primarily due to the effects of the current labor market, both direct wage increases and the resulting network inefficiencies caused by not being able to staff their hubs to their designed capacity.

Here’s what FedEx investors are thinking right now, based on their questions from the call, which were asked repeatedly and with a high degree of snark:

  1. If FedEx isn’t hitting its margin targets, shouldn’t it stop adding capital expenditures?

  2. Does FedEx really think that the situation will stabilize next quarter before it gets better?

  3. If the company has such pricing power, why didn’t it increase prices even more to offset the margin contraction?

  4. Why is every other company in eCommerce growing margins while yours are contracting?

  5. If FedEx is going to grow and have margins continue to decline, why grow at all?

Of course in today’s eCommerce world, if you are not investing you are slowly dying, which is exactly what will continue to happen to FedEx if it doesn’t find a way to either greatly increase its return on invested capital, or find new investors.

What does this mean for those in the eCommerce world?  A few points are obvious from the call.

First - If you are an Amazon seller using FedEx, prepare for a rocky holiday.  It’s possible and even likely that Amazon will ban FedEx yet again from being used by its sellers at some point this holiday.

Second - Expect more surcharges from FedEx than you are used to seeing as the company works to claw back some of the margin it’s lost.

Finally, put me squarely on the side of analysts that seemed incredulous on the call when FedEx said things would stabilize.  There is almost no earthly way FedEx will be able to hire the 95,000 workers it needs to staff its network.  This leads me to the simple conclusion that margins will definitely get worse for the company before they get better.

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It’s That Time Friends, for our Investor Minute.  We have 6 items on the menu today.

First

Robotics process automation company Locus Robotics had two major announcements in the last week. The company raised $50M from existing investor Tiger Global to fund future expansion and, at the same time, acquired Waypoint Robotics to help further streamline warehouse operations.


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Second

Mens resale marketplace Grailed received a $60M investment led by competitive marketplace GOAT.  Resale marketplaces such as Goat and StockX have been growing for the past 10 years at the expense of companies like eBay, which used to be the only player in the market for secondhand merchandise.


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Third

The online marketplace to buy and sell small businesses, Flippa. raised $11M in a Series A led by OneVentures.  From an eCommerce point of view, you might say that Flippa is at the smaller end of the investor market for the acquisition of all types of companies.  I’ve even heard of some lower-end Amazon and Direct to Consumer aggregators using Flippa as a source for their deals.


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Fourth

Supply chain visibility vendor project44 recently purchased software vendor Convey, which has aimed to connect critical supply chain information to the buyer journey so that brands can predict and then deliver on better customer experiences.


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Fifth

Marketplace platform provider Mirakl announced it raised $555 Million Dollars at over a $3 Billion Dollar valuation last week.  The company indicated proceeds from the round are to be used on research and development, customer service, not to mention acquisition opportunities designed to round out its product offerings.

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AND FINALLY …

SaaS software holding company WithAssembly received additional funds from Private Equity investor Advent International.  WithAssembly owns such popular software as Helium10, Refersion, and OrderMetrics.  Although the investment amount itself was not disclosed, the company’s valuation was set at over a billion dollars.


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[PAUSE]


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.

To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.

Rick Watson

Rick Watson founded RMW Commerce Consulting after spending 20+ years as a technology entrepreneur and operator exclusively in the eCommerce industry with companies like ChannelAdvisor, BarnesandNoble.com, Merchantry, and Pitney Bowes.

Watson’s work today is centered on supporting investors and management teams incubating and growing direct-to-consumer businesses. Most recently, in partnership with WHP Global, Rick was a critical resource in architecting the WHP+ platform, a new turnkey direct to consumer digital e-commerce platform that powers AnneKlein.com and JosephAbboud.com.

Watson also hosts a weekly podcast, Watson Weekly, where he shares an unbiased, unfiltered expert take on the retail sector’s biggest players.

In the past year alone, Rick has spoken at many in-person and virtual events as well as podcasts on topics ranging from retail/ecom to supply chain/logistics and even digital grocery including CommerceNext IRL, ASCM Connect, and Retail Innovation Conference.

https://www.rmwcommerce.com/
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