“Delivering food requires military precision,” writes The New York Times (June 25, 2017). People expect their food to arrive at specific times. Delivering perishables is much trickier than delivering T-shirts, books or pretty much anything else people can buy online. The biggest challenge is that groceries must stay cold for hours at a time. But there are other complications. Bananas and apples give off fumes that can hurt loose leaf lettuce, so they can’t be stored too close. Tomatoes lose flavor when they cool to below 55 degrees. Milk always has to be packaged upright.
All the complexity adds costs in an industry where profit margins are already thin. Numerous start-ups have failed in grocery delivery, making groceries the last frontier of online shopping. Even Amazon, which has perfected its logistics, hasn’t mastered the art of profitably delivering perishable food in metropolitan areas. But it just made a big bet, purchasing Whole Foods in a $13 billion deal that will give it access to 400 stores in major population centers — places that may have walk-up apartments, limited parking, and other urban obstacles.
Every second counts. Grocery delivery companies like Peapod have to calculate exactly how long each individual order will take, and monitor traffic patterns and accidents for any disruptions their trucks may face. At Peapod’s warehouse in Jersey City, a 400,000-sq.ft. facility that services NY and New Jersey, 425 people bustle in and out of the meat room, the produce room, a rotisserie room filled with rotating chickens. Workers load items into bright green temperature-controlled bins called “totes.” Once perishable items make it into the tote, the clock starts ticking. Peapod has 19-21 hours to get totes to customers, and everything has to stay at the right temperature that whole time. A break in the cold chain on the way to a customer means even the healthiest-looking berries can rot.
Classroom discussion questions:
- What are the major OM issues a firm like Peapod faces?
- How does Peapod differ from Amazon?