New Techniques With Old Product

The simple things are hard to see.

If I had walked down main street in 1885, I would have a seen stores operated by  a pharmacist, a green grocer, a butcher, a dry goods merchant, a baker, and a purveyor of hardware.  Today I see none of them.  They have been replaced by supermarkets.  The idea of putting all the stores under one roof and pooling overhead was close to unthinkable 1885.

Today we would find it odd to have clerks fetch our choice from a warehouse while we waited at the counter and talked to the other customers.  We would find it even more strange that almost none of the goods were prepackaged.

Change began to happen in 1915 when Vincent Astor started something akin to a supermarket in Manhattan.  It failed.  New and strange ideas take time to become accepted.

Self service stores began in 1916 with Piggly Wiggly, but was not until the 1930s that a supermarket we would recognize as such developed.  Ralph’s In California and King Kullen in New York were among the early ones.

So why was the idea of high volume, low price, low labour cost and share overhead so long in becoming the norm?

Ideas that seem like existing methods are very hard to see.

Today Amazon is creating a new field.  Online supermarket.  Even hyper market.

The same rules apply as before.  Lower overhead per unit sold.  Interconnected offerings so that one may benefit from the existence of another.  Smooth logistics.  Ease of access.

Some may wonder how a book-seller came to be a hyper market but therein lies the genius. Jeff Bezos decided to be a hyper market first, but had to learn how.  Not much previous history to go on and little experience on his part.  So he picked the easiest possible product to start.

A book.  Easy to package, easy to ship and very hard to break.  As the saving flowed to customers the volume rose dramatically.  E-books may have been a distraction from the main goal but a profitable one.

Today Amazon’s server farm and specialized software are used by tens of thousands of businesses.  They are like an electrical utility in that they share their vast and specialized resources and by leveling the load, provide an inexpensive service to each of us.  Load leveling is a crucial cost factor.  What Amazon needs at the peak is probably five times what it needs on July 10th.  They win by selling their surplus and they gain flexibility by being able to afford to build a facility with capacity that far exceeds their own peak.

As with supermarkets, it has taken years until people accepted the idea as self-evident.  Meaning comes clear only with a long time exposure.

You might want to invest in others with similar ideas.  Like what we do now only fundamentally different.  Like Elon Musk the battery guy.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.


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