Delivery Wars

An article in the March 9, 2019 WSJ titled, Your Food is Almost Here, caught my eye this week. The full page story outlined how consumers love delivery, but grocers and restaurants don’t. So why do they do it? Well, because in many retail businesses foot traffic is down, competition with online is up, and businesses are competing for share of wallet with the likes of Amazon and Is it simply a race to bottom for most? Is this one last attempt to stop the bleeding of a retail apocalypse?

Back during the Internet Bubble of the 90’s I remember having a conversation with a friend who was considering an investment in Cosmo, the NYC food delivery business. He wanted to know my opinion and I shared with him that I had familiarity with grocery delivery and while I was a fan of the service personally, I was not a fan of the business model.

You see, where I grew up just outside of Newark, NJ everything was delivered until it suddenly wasn’t. Italian bread was delivered by the bread man, fresh milk and ice cream by the milk man, watermelon, bananas, meat, fish, bleach and soap, knife sharpening all delivered by individual proprietors each with a distinctive call, horn, or bell to alert residents that they were on the street. Even clothing was sold out of the back of a truck by Mr. Harry Marx. I don’t recall ever going to a large supermarket until I was in my early teens by which time most of these proprietors had gone out of business.

So, what happened? Technological change and the resulting changing economics conspired to change tastes and preferences . Today, houses are larger, families are smaller, and convenient consumption is an expectation. I’m not that old, but where I grew up homes were much smaller, families much larger, consumption much less and even personal transportation was limited to one car per family. Two cars was a bit of an extravagance. You bought only what you needed and you bought it locally from numerous proprietors. My grandmother, who lived with us, ordered meat from the local butcher, Mr. Prezioso. She ordered produce from Mr. Bucchino whose storefront was across from the butcher’s. The meat and produce would be delivered later that day by one of Mr. Bucchino’s or Mr. Prezioso’s sons. If my grandmother felt generous she might give the kid a whole quarter tip.

Why did it work ? First, there wasn’t a supermarket within walking distance of the neighborhood. Since the family car was often used by one or both of the parents to get to work, that left the other extended family members with few alternatives to get the shopping done. So, it made sense that there were a number of business that came to you. Once the supermarket opened nearby and family sizes, family dynamics, and tastes began to change it was acceptable and convenient to walk to the supermarket where you could get everything in one shot, forcing many of the small businesses to close. Under price pressure the local butcher and produce store would eventually close as well. They no longer had the luxury of delivery as a means to compete because their kids grew up and could no longer supply them with free labor.

Screen Shot 2019-03-10 at 1.12.37 PM.png

Across America today in both cities and suburbs people love the idea of getting every product and service brought to their front door. And while they are willing to pay a delivery fee it doesn’t come close to covering the cost of delivery. Whether you do it yourself or outsource it, the costs take a big bite out of profits. Several well-funded unicorns, most unprofitable, are battling it out in what might be a winner-take-most market.

My guess is that delivery is here at least for as long as there is plenty of cheap venture money to fund losses or the next recession. When the consumer has to once again do some belt tightening will delivery be one of the first things cut from the budget? Or can the cost of delivery be reduced to at or near the cost of Mr. Prezioso’s son?