Great article Matt! It is very interesting to assess the different motivations that companies have to tackle global warming issues – while some do it mostly as a PR play, there are some industries where it is a fundamental play that is tied to the long term existence of the business model.
However, as TZ mentioned, beer companies can not afford the higher prices that would be tied to operationally becoming more resource conscious and are having to technologically innovate to be able to meet their needs of the future.
In my point of view, the two places where AB Inbev should double down are:
– Driving innovation that could yield higher crops would be a way to lower the total cost to the system while passing on most of the created value to the producers, improving the long term feasibility of the market.
– Optimizing the amount of resources required to produce the final product. Several of the largest beverage manufacturers of the world are heavily investing on reducing the amount of water required to produce their goods. While re-usage of water is a main driver of this kind of initiatives, the cost to clean and reuse water is still a deterrent.
Great article Maddy! The timing couldn’t have been better either, as only a week after posting a report from the FT surfaced Foxconn, the largest Apple product manufacturer in China, for having employed students in illegal working conditions to meet demand for the end of year demand surge. (http://fortune.com/2017/11/22/apple-iphone-x-foxconn-china-labor/) This definitely adds even more complexity to an already pretty controversial debate.
However, I will respectfully disagree with some of the points of view stated above. At this point I don’t think of Apple as an American company, but a global company. Where they are headquartered should not drive by any means the place where they manufacture or where they set up their engineering or customer support facilities.
In order to be able to pass on the cost benefit for the customers, Apple has the internal responsibility to find the places in the world where it is most cost effective to do all these things. Not the cheapest place, but the place that has the right mix of cost and quality.
All in all, it is my particular perspective that it is not Apple’s responsibility to create jobs. It’s Apple’s responsibility to innovate in technology and to bring the future closer. On the other hand it’s the government’s role to foster job creation, but not at the expense of corporate freedom. If the current administration wants Apple to bring back all those jobs it should put in place the financial incentives for that to happen, and not threaten to place tariffs on imports that would only hurt the end consumer in the end.
This is a very fine line to tiptoe, one which a lot of other large manufacturers are facing (hello car manufacturers!), thanks Maddy for opening up the debate!
MV, this is a great article! E-commerce is definitely shifting the way the whole supply chain looks like for retailers, but specially for retailers carrying larger sized articles such as the Home Depot, where delivery of items becomes a lot more complicated due to volumetric restrictions.
One thing that really stood out to me from your article is that over 80% of returns are done in store. This is impressive. Returns are one of the highest costs incurred by most e-commerce retailers, and I would have thought that they would be a major pain point for the Home Depot. One thing that I would love to understand is wether this is driven by having a specific pricing on returns that prompts buyers to drive to the store to return on their own. Another possible alternative might be the fact that by returning directly to store they can pick up a replacement in situ.
While on the surface this might seem to be a huge positive, it might be increasing the barrier to order and hindering orders from being completed, so I would urge management to A/B test against this in different cities.
As for your second question, I see a future trend where last mile delivery becomes so efficient that stores are only used as showrooms and all inventory is shipped same day from distribution centers. For this trend to come true, the aggregate cost of rent would have to be larger than the total cost of fulfillment. With primer real estate rent prices going up and last mile delivery getting more efficient I can envision a future state where this happens.
Great article JJ! Mars is definitely facing a very interesting crossroad where they will have to balance short term profitability with a long term strategy that solidifies their position to lead the market in the future.
As consumers grow more aware of the environmental impact of their purchases, I agree with the author that moving the brands and their packaging to have an environmentally friendly image and perception could go a long way in the commoditized market of chocolates and sweets as a whole.
I find the last question that was posed by the author (what happens if the suppliers can’t catch up with demand?) particularly interesting, but have a different take on the potential outcome. In my perspective, Mars is already doing everything on their power to ensure that their approved providers increase their yield, even if they don’t come close to the 60% yield that other crops achieve, getting to 20% would allow them to double production which would be well ahead of the growth curve of demand.
A final comment, this is another example of companies that have perfectly aligned business and sustainability objectives. This alignment definitely ensures a higher chance of success and follow up on corporate responsibility activities, which in the end drives value for society.
Thanks for your article Alex Robinson! Take it from a Mexican that is very concerned with the potential ramifications of the NAFTA negotiations on my home country’s economy. However, I will respectfully disagree with both the underlying core issue that you presented and your action plan.
As FD mentioned, having a “Mexican brand” does not necessarily require for the products to be produced in Mexico – it is only the brand that needs to resonate with the origin, but production could happen anywhere and still feel the same. Take for example Nike sportswear – the quintessential American sports brand has nearly 100% of its production being done in Southeast Asia, and still consumers perceive it to be an American brand that resonates with them and that they are mostly proud of.
If that is the case, then why hasn’t Constellation moved production to the US? Because, at least up until now, the economics don’t make sense.
When such large M&A’s happen, the acquiring company is buying both the brands AND the production capabilities. At this point, a lot of different scenarios are analyzed to try to find synergies that would allow to reduce COGS and improve margins. Not being an expert on the industry I would have to guess that the COGS of producing in Mexico + transportation costs are still more cost effective than bringing any part of the production up to the US, starting with the crazy high capital expenditures that are required to expand mass production of beer.
While the recent stance from the administration is definitely something to watch out for, the food and beverages industry as a whole definitely has enough lobbying power to ensure that the economic opportunities that they currently benefit from are not completely wiped out.
Here’s to hoping we can keep discussing this issue while drinking some Coronas!
Great article TK! Thanks for sharing your perspective on this.
I would like to add a slightly different reason for which Nike would have gone into this partnership: other retailers/resellers are selling Nike products through Amazon anyway, and Nike is missing out on all that revenue and the margin that said resellers and capturing. For this reason, I will disagree with TK’s opinion that selling through Amazon is contradicting the “2X Direct” strategy set forth by Nike, where they state “all new partnered NIKE consumer experiences”. They ARE getting closer to the consumer through the Amazon platform by cutting the middleman that was selling their assortment of products anyway.
For this to work, however, I would advise Nike management to require Amazon to promote the Nike owned Amazon assortment over any over reseller.
To comment on John Pettifred’s comment above: I completely disagree with his assessment of the situation. Nike not only should continue their pilot with Amazon, but actually double down on it.
While John’s assessment holds true for mostly ALL other retailers in the world, Nike has such a powerful and recognisable brand that I don’t see a world where Amazon can go around Nike and compete in an industry that is dominated by how powerful a connection with end customers the brands can be. Adidas and Nike are the only two safe players, everyone else is not.
Great article! Digitalization is definitely transforming access to education around the world, and while the issue about wether degrees should be awarded is definitely up for debate, I can’t help but focus on the economic opportunities that the democratization of education is opening up.
There are currently several organizations across the globe that are working to remotely teach technical skills to people in disadvantaged situations in order to provide them means to a sustainable income. Take for example “Refugees Code”, a non profit whose mission is to “support refugees in getting qualified jobs, as well as enabling persons entitled to asylum status to lead a self-determined life”. Before the age of digitalization and free access to education it would have been impossible to run an organization like this. (http://www.refugeescode.at/about-us/).
Going further downstream, and moving away from the education piece, companies are also outsourcing more of their “digital microwork” and Dignify, a non-profit marketplace founded by HBS students, is connecting refugees with this work opportunities, striving to offer a source of income to people in such conditions. (http://www.discoverdignify.com/)
Digitalization is transforming access to education and access to economic opportunities, and hopefully will continue to do so as we strive to live in a more egalitarian world.