Sunday, September 24, 2017
The Food Delivery Bubble
Why all the hype about food delivery?
The media is at it again, this time hyping yet another food delivery service. Walmart is supposedly testing a new food delivery service that will deliver food "right into your refrigerator". I'm not sure how this will work, whether you'll have a refrigerator that has a door that opens to the outside of your home or whether people are seriously going to allow minimum wage Walmart employees into their house while they're not there. Either way it sounds like a really bad idea.
But the story is just one in a number of stories about food delivery which seems to be part of a national obsession which strikes me as yet another bubble. The Washington Post which is owned by Jeff Bezos who owns Amazon, publishes one breathless article after another about how your fresh kale will be delivered by drone to your home now that Amazon owns Whole Foods.
There are a number of problems with that story of course. First of all while a few people are eating fresh kale (and of course a lot of people in the South have been eating it for years) most Americans are still wolfing down burgers and french fries, not fresh vegetables. Just because a few yuppies in the media do something doesn't mean the rest of America does.
Second of all, these publicity stunts where they use "drones" to deliver products from Amazon or pizzas from Dominos are just that - stunts. They're not drones in the sense that they are autonomous vehicles, but rather just radio controlled helicopters that fly products for short distances for the media cameras. This is not a practical way of delivering anything.
In case you missed it, there's something called lawyers in this country and something called liability. And already drones are falling out of the sky and injuring people. So you can only imagine what would happen if hundreds of thousands of drones were going around neighborhoods delivering packages and pizzas and fresh kale and landing on Little Billy who's playing on the sidewalk and gouging his eyes out.
The other thing that we have is something called weather which you may have noticed recently in the form of hurricanes. But even in non-hurricane situations, we do have high winds which often make it impossible to fly drones. Rain and snow and hail are things that would ground drones on a regular basis and make them impractical for delivering food or packages or whatever. It's just a fantasy that's really not going to happen anytime soon., if ever.
But the other half equation - this idea that everyone wants their food delivered - is somewhat overstated. Now granted, as I noted in my pizza delivery posting, I paid my way through college partially by delivering pizzas. And I realized while doing that job, that America's appetite for convenience food is pretty much bottomless. And it was ironic that as a young man struggling to work my way through college, I would be accepting tips from other students who were borrowing money using student loans to pay me. They made stupid choices and I make smart choices. And likely they're still paying off their student loans. But I digress.
It does beg the question, though, where are these delivery companies going to get an endless army of underpaid plebes who will work for peanuts delivering food? I guess Uber has shown us that people will do anything for a buck, but with record low unemployment rates, even they might find themselves running short on drivers - and by the way, the only way they attract drivers is by overpaying them - Uber loses money on each and every ride. But again, I digress.
As I've noted in number of postings, using a restaurant as your kitchen is usually a bad idea, amplified by a factor of three when you're using delivery food as your kitchen. And yet the number of takeout, carryout, takeaway, and delivery options has exploded in recent years. Not only are restaurants delivering food to customers, but third-party companies using "apps" are offering to deliver food even from restaurants that don't offer delivery.
Delivering groceries is really nothing new. I recall when living in Washington DC in the 1990s that Giant foods started a program called Peapod that would deliver food to your door. Most of us were skeptical at the time about this, as picking and choosing food is a very personal thing. Some friends of mine have used the service and said that the selection of food was good. One would think that they would try to send you the wilted lettuce and dented peppers but apparently this is not the case.
And while those home grocery delivery services have been in business for decades now, they've never really exploded to the point where they've supplanted in-store shopping. They work very well for people who claim to be "too busy to shop" or for shut-ins or other people are unable to get out of the house. As a mainstream form of retail, it doesn't seem that home delivery of food is getting ready to take over.
Of course, I could be wrong about this. Faith Popcorn, the futurist and prognosticator, predicted that in the future we would all resort to "cocooning" - where we would never leave our homes. And while Ms. Popcorn has been wrong about an awful lot of things, maybe she was right about this. This year the movie industry is tanking as people are not going to the theaters to see the latest Blockbusters. When people have 60" or 70" flat screen TVs and home theaters it's not hard to see why. Going to the movies has become an arduous task. You go there, pay through the nose to see a movie, and pay through the nose for popcorn and a soda pop and then have to sit with a bunch of noisy teenagers and people who are texting or otherwise being disruptive. And then of course there have been the celebrated instances of violence in movie theaters which is enough to scare older people away.
So many of us don't even leave the house anymore. Throw in the fact that many of us work from home, and it becomes very scary. So maybe there are legs in this food delivery thing as we become an agoraphobic nation and basically barricade ourselves in our homes, interfacing only with the UPS man and the mailman, or perhaps some lifeless drone hovering in front of our door.
But even if we assume that there is legs in this thing, there are way too many people in this space and the values being pitched for these home delivery services are crazy. We are being told the companies that deliver food to your door have a greater market capitalization than Ford Motor Company which actually makes things, sort of.
And if you think about it, there is really no barrier to entry in the home food delivery market. This is not a patentable or protectable technology, indeed it is not even a technology. Delivering stuff has been around for a long time. In fact my very first job at age 13 was delivering stuff - newspapers. And it wasn't but a few years later that I was delivering pizzas. And as I noted, decades ago grocery stores started delivering groceries, and they even did so in the Mayberry RFD era for the shut-ins of that time.
So yes, I am little skeptical about the financial press hyping food delivery to your home as some new "technology" that's going to take over and is worth billions and billions of dollars. It just doesn't make any sense. It's a labor- and cost-intensive business. And the supply of mindless (human) drones who will deliver food for minimum wage is shrinking fast. It has to be managed very carefully in order to be profitable at all. People are not going to pay much of a premium to have their food delivered to home before they get up off their easy chair and just drive down to the grocery store which is probably less than a mile from their house.
Sadly, it looks like this food delivery thing is yet another speculative bubble.