Sunday, April 16, 2017

Water by Air: Does Shipping Water Make Any Sense?

Bottled water is problematic to ship – considering that a single gallon of water weighs eight pounds - be that across the city, or across the country or globe. So how do companies factor the expense of shipping costs while provide inexpensive, or free delivery?

The answers are relatively simple: volume, loyalty programs for points that can be used for future purchases, handling fees, higher costs on initial purchases, and membership fees help any company to defray expenditures on shipping. Both individual bottled water companies, mega-retail stores and shipping companies see the niche of shipping water, and a big part of that is convenience, and not requiring heavy water to be lugged from the store to your home. This is immensely helpful for senior citizens, single moms who are short on time, and consumers with disabilities for whom shopping is a chore. According to a 2016 survey by Deloitte, just 42% of consumers characterize 3-4 day shipping as "fast" whereas in 2015 it was “within 5 days,” and most people now expect 2-day shipping. In fact Wal-Mart started offering free two-day shipping in early 2017 on orders from an assortment of 2 million items for orders of $35 or more. That is down from the previous minimum threshold of $50. Money talks, but it seems time talks louder.

Shipping water for residential delivery by mail, delivery truck or freight is nothing new. In many cases it’s merely a retooling of the old Home Office Delivery (HOD) model, but with more choices of types of water, brands, sizes and frequency and convenience of delivery. For example, Alhambra Water delivers HOD with 5-gallon returnables or a 25 pound case of ½ liter bottles. Granted, their delivery is regional in California, but they have adapted to consumer demands; i.e. delivery with choices other than just their water; partnering with Voss, Fiji and Sparkletts for delivery as well. Let’s look at a few examples.

Fiji ships only cases (12 bottles per case) so a 24-pack case of 500 ml sells for $29.50, however you get to choose shipment frequency between a 7-day and 90-day cycle, thus allowing repeat purchases. They do however offer one-time delivery as well, but it is subscription that is their most popular delivery plan; this pay-as-you-go option offers 20% off one-time rates and ships monthly, allowing the flexibility to increase or decrease case quantities as needed or pause and resume service without any penalties. It is the convenience to start and stop, order fewer or more cases, which attracts people.

ReadyFresh is Nestlé’s delivery service for its entire Nestle Waters portfolio. So, a case (12 liter bottles) of Arrowhead will cost $14.99, but ReadyFresh allows you to choose one time delivery, or, frequency of delivery, saving money on shipping if delivery is consistent. For one-time deliveries a delivery fee of $6.95 is applied. For “rush” orders placed less than 24 hours before a delivery appointment, an additional $3 surcharge is added to the base delivery fee. Most recurring customers on Auto-Delivery are charged a $3.95 flat Delivery Fee, though in some markets it is higher; Manhattan customers pay a $5.95 Delivery Fee - Philadelphia and San Francisco pay a $4.95 Delivery Fee. Transport has always been a key consideration for Nestlé’s bottled water business model and they have built significant expertise due to their longstanding experience in supply chain management. As a result, their logistics and delivery programs are quite efficient. But no one it seems can compete with Amazon.

Amazon ships any and all water, allowing for the most diverse selection of bottled water anywhere. Using Nestle Pure Life as an example, a 24 pack of 8 oz. bottled water is a mere $3.50, and Amazon Prime’s $99 annual fee means “free” shipping. Without free shipping Nestle bottled water 16.9 oz bottle for a case of 24 costs $7.50, plus $5.99 shipping. But that’s changing. Consumer Intelligence Research Partners estimates that Amazon has 63 million Prime members as of 2016 and those customers are three times more likely to purchase more items than those who do not use Prime. According to Bloomberg, in 2014 Amazon launched Prime Now in New York, with couriers who drove cars, rode bikes, and took public transportation with carts loaded up with Amazon boxes for delivery. Prime Now offers more than 40 cities currently. The service’s most popular items? Bottled water and toilet paper.

Costco signed a deal with Shipt  in early 2017 to deliver groceries to residences. Costco members do not have to use Shipt, a third-party shipping service, but it is available for all members. However, Costco has also raised its membership fees, presumably to compensate, at least in part, for Shipt’s $99 annual fee for delivery. Shipt also works with other grocery stores as their delivery service as well and dues vary. Shipt is not national, as of this writing, but they are planning on capturing a greater percentage of that market.
This beverage supply company in Florida ships all types of bottled water; cans, glass, gallon, etc. For example Perrier 11 oz. glass, 24 count runs $27.95 with free shipping on orders over $149, but within the contiguous US only. However, they add “freight delivery” which in many cases is also listed, not as “shipping” but “handling,” so it behooves the consumer to be aware of all charges. For example, Crystal Geyser Alpine Spring Water, 16.9 oz. bottles, 35 Bottles per case, and 54 Cases per pallet – the total cost is $363.15, with free shipping. However “freight delivery” is $76.46, with a total end cost of $439.61.

Clearly the key is a scalable distribution network, aside from that, and the issue of volume sales, the niche market will undoubtedly sustain itself as consumers look for convenience, ease of purchases, and home delivery on demand.

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