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July 30, 2018 • Volume 20

 

About eight months ago, Target announced that during the 2017 holiday season, 70 percent of Target orders were fulfilled from local stores – a really big deal that didn’t get nearly the attention that it should have at the time. So we decided to look into Rakuten Intelligence’s fulfillment data set to see how this played out by the numbers.

The chart below tracks the average distance that packages ordered from Target.com and Walmart.com travelled from 2015 through April 2018 to reach their destinations.  We can see that the average package travel distance has been largely flat for Walmart.com over time [note that this excludes click & carry orders, which aren’t delivered], but that it has dropped precipitously for Target.com.  In April of 2016, the average Target.com order travelled 798 miles.  Two years later, in April 2018, the distance had dropped to 322 miles, an improvement of 60 percent.

We have always intuitively known that brick and mortar retailers had an ace in the hole because they have far more widely distributed inventory than their .com competitors, which only have fulfillment centers. The metric that most obviously shows this impact is the percent of orders that are fulfilled through click & carry. Walmart does particularly well on this metric, with nearly half of orders for Walmart.com and Walmart Grocery being fulfilled through this method. 

However, consumers often don’t want to go to the store – in fact, avoidance of the store is one of the key value propositions that e-commerce offers.  What Target has done is remarkable in that it leverages local inventory while still providing delivery.  We estimate that Target’s strategy of tapping local inventory saved the retailer nearly 4 billion package transit miles in April 2018 alone [which represents 160,000 trips around the globe or 8,400 trips to the moon and back, for those looking to dazzle friends at cocktail parties]. 

This means that Target was far less likely to have to ship packages across multiple shipping zones, that in-store inventory turned faster, that it didn’t have to invest in more fulfillment center capacity as the online business grew, and that fewer carbon emissions were exhausted transporting packages unnecessary distances.  Perhaps most importantly, Target’s ability to pull inventory from local stores at scale fully unlocks the potential of its $550 million Shipt acquisition.

I would be amazed if there weren’t horror stories from Target store employees and from Target.com customers as Target learns how to transform its operations (and wrestle real time in-store inventory tracking to the ground).  However, this is pain that anyone with lots of stores is going to have to endure at some point in order to gain cost advantage and to expedite the delivery of orders to consumers that expect fast, free shipping.

Eventually, a heavy enough volume of online orders shipped from stores ought to compel Target to re-imagine the store, allocating more square footage to create mini pick and pack facilities to make order picking more efficient, and to ensure that store pickers don’t battle with customers for the last Xbox in stock.

Last week, Chef’d CEO Kyle Ransford announced that the three year old company was shutting down because it had run out of funding.  Chef’d was a relatively late entrant into the [now shrinking] meal kit solutions space. The advantage to being late is that you can learn from the mistakes and challenges of those that started earlier. 

Chef’d bet that consumers wanted choices in meals, rather than the limited options offered by Blue Apron and Hello Fresh, offering thousands of different kits. It realized that it was difficult for consumers to predict what days they’d be eating at home weeks ahead of time,  and offered next day delivery rather than a subscription model.

Chef’d recognized that there was significant opportunity to drive sampling opportunities with food suppliers [a fancy mayonnaise brand that we might be unfamiliar with, for example] and attracted investment from CPG brands Campbell’s and Smithfield Foods. And Chef’d struck distribution partnerships with brick and mortar retailers Costco, Walgreens, and others.

The trouble is that competitors such as Blue Apron and Hello Fresh were able to get IPOs off while there was still investor interest in the space and had made some of the same moves, most notably bringing their meal kits to brick and mortar retailers. Chef’d, in the end, stood out for the fact that it offered a much wider selection of meals for next day delivery – a model that it seems was not financial viable. 

With more runway, Chef’d might have been able to achieve enough demand to cover costs, but it seems that paving the runway was too expensive. The meal kit solution space still has a bright future, but it is pretty clear that the successful path is going to be through brick and mortar retail outlets where a shopper can pick up a meal kit for dinner that night. Blue Apron and Hello Fresh will maintain their subscription model using third party shippers for the foreseeable future, but partnerships with retailers will define success or failure in the long run for them both.

About Ken

Ken Cassar is vice president, principal analyst at Rakuten Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.

Ken brings a rich online retail background to Rakuten Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.

Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Rakuten Intelligence's profile. He also has the appropriate jacket for every occasion.

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