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Welcome to Near Future. In this weekly feature, The Current spotlights innovations powering the next wave of commerce.
On Dec. 2, 2013, Jeff Bezos appeared on 60 Minutes to plant a flag for the future of ecommerce: drone delivery.
As the Amazon founder unveiled the company's delivery drones for CBS cameras, he talked about how they would be key to the company's goal of providing 30-minute delivery. Prime Air hype went into the stratosphere. Yet it’s worth remembering that, during the interview, Bezos did attempt to bring things back to Earth.
“This is early,” he said during the interview. “This is still...years away.”
Later in the interview, Bezos talked about how introducing drone delivery five years might be realistic, even while allowing that he is an optimist. Nearly a decade later, drone delivery isn’t yet a normal part of the ecommerce equation. As is often the case with emerging technologies, there have been plenty of times when results of a test required charting a different course. But companies have continued to invest. Technologists, flight experts, ecommerce professionals and regulators have kept at development, and made progress. In fact, the first half of 2022 is bringing lots of advances. Here’s a look at some of the latest developments:
Walmart goes big
A Walmart drone in flight. (Courtesy photo)
Walmart’s drone delivery is set to take flight across the country.
This week, the retailer announced plans to expand its DroneUp delivery network to 34 sites in the United States by the end of the year. That means it will have the potential to reach four million households in states including Arizona, Arkansas, Florida, Texas, Utah and Virginia.
Walmart’s service will make under-30-minute delivery available between the hours of 8 a.m. and 8 p.m. The fee is $3.99 for items totaling up to 10 pounds.
In testing, Walmart said it expected customers to use the service for emergency items. But the more popular use case has been the convenience it provides. The most-ordered item so far, the company said, is Hamburger Helper.
When it comes to scaling drone delivery, Walmart has a unique advantage. Its roughly 4,700 stores put it within 10 miles of 90% of the population. With thousands of items, these stores already have many things under one roof. With drones, it will add an air traffic control of sorts. To complete these flights, each store will have a team of drone pilots.
Once a shopper clicks “buy,” items are fulfilled in the store, packaged and loaded onto a drone. When they arrive at a dropoff point, they are lowered by cable into a customer’s yard.
Walmart partnered with Virginia Beach-based DroneUp on the service. The retailer invested in the startup early in mid-2021. By late last year, the companies stood up three hubs to test the service in the company’s home state of Arkansas.
With the expansion of Walmart’s network, DroneUp will also make services available to municipalities and businesses for functions like insurance, emergency response and real estate.
This will help to further establish drone-based businesses in these areas.
“Not only will the added revenue help offset the cost of delivery, but it also serves the entire drone industry by gathering more flight data as we work together to expand drone operations in a safe and regulated way,” Walmart wrote.
Walmart’s ambitious expansion means the retailer will have the largest reach of any commerce-driven drone delivery program we've seen to date. That also means it will be the first to learn how it works in wide use, and whether there is broad public uptake beyond the novelty of ordering via drone.
Wing spreads in Texas
Wing in the air. (Courtesy photo)
Walmart’s announcement came just over a month after Alphabet drone subsidiary Wing announced what was then the largest test of drone delivery in a metro area. In mid-April, the company began delivering items from Walgreens in four suburbs of Dallas, Texas. Operating for customers within a six-mile radius of a store, the company set an ambitious goal to deliver items in 10 minutes or less.
Orders are fulfilled by Walgreens employees, who receive notification on a tablet that an order is in, then locate an item in the store and package it, the companies said. The employees then clip items onto a drone in the parking lot of a store, where they are waiting on charging pads. Wing employees then oversee deliveries, which are made to doorsteps, backyards or another preferred location.
This is a big effort, and there will be plenty of learnings. Chief among them: How drones can optimize for navigating a more complex near-urban area as they deliver packages.
Ice cream express
(Photo courtesy of Flytrex)
When it comes to encouraging adoption, providing delivery of an item that people love can help sweeten the deal. That’s the approach Unilever is taking this summer as it provides ice cream delivery via drone in North Carolina and Texas.
The consumer goods company – and self-described largest ice cream maker in the world – is partnering with food-focused drone delivery company Flytrex, which operates in North Carolina towns of Holly Springs, Fayetteville and Raeford, as well as Granbury, Texas.
The drones will deliver via The Ice Cream Shop, an online store from Unilever that carries brands including Ben & Jerry’s, Breyers, Good Humor, Klondike, Magnum ice cream, Popsicle and Talenti.
Once orders are placed using the Flytrex app, deliveries will be made to the front and backyards of residents in under three minutes. Under an FAA waiver, the service is allowed to operate within one nautical mile of a delivery site, putting homes within its reach in the thousands.
This airborne drone delivery is running alongside a separate Unilever pilot offering on-demand ice cream delivery via ground-based autonomous vehicles in Los Angeles.
For now, drone delivery remains in test mode. The Federal Aviation Administration has yet to approve a commercial program, as each of the programs described above are technically operating with special permission.
To be sure, however, the progress of drones is intriguing, and companies have good reason to continue moving forward with testing. Drones stand to take cars off the road and reduce emissions. Plus, if programs grow, they could help reach people in remote areas. If programs were to scale massively, there is also the promise of reducing labor costs.Drone delivery could solve a key challenge of ecommerce operations: Faster delivery is increasingly expected by consumers, but it gets more complex as scale increases. For a glimpse of the difficulty of launching a large-scale drone program, look no further than Amazon. Its ambitious plans for Prime Air have hit roadblocks such as drone crashes and safety concerns, according to an April report in Bloomberg. Costs are also an issue. Business Insider reported that Amazon's drone delivery is $63 a package, while on-the-ground packages cost $5.50 each. Still, the company intends to complete 2,500 tests this year. Down the road, there may be another big unveiling still to come.
Trending in Operations
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.